The US Federal Reserve (Fed) left interest rates unchanged on Wednesday after ten consecutive hikes but signalled rates may move up another half of a percentage point by the end of the year. Equity markets largely anticipated the pause but initially reacted negatively to the higher projections for the rest of the year.
The Fed left its target range for the federal funds rate at 5% to 5.25% on Wednesday, giving its previous interest rate hikes some time to have their effect on the economy. Fed Chair Jerome Powell noted the US economy and labour markets were holding up well despite the Fed’s most aggressive monetary policy in decades. The central bank's latest economic projects foresee improved economic growth, somewhat lower unemployment and slightly higher inflation than the Fed’s last projections. Consequently, nine of the 18 officials of the Fed’s body overseeing monetary policy now see the benchmark overnight interest rate moving up by another 50 basis points by the end of the year. Three more officials think the rate could go even higher. At the same time, the Federal Open Market Committee (FOMC) members see the target rate dropping to 4.6%in 2024 and 3.4% in 2025.
Before the Fed decision on Wednesday, US Producer Price Index fell in May to 1.1% on the year, signalling price pressures on the supply side are coming down rapidly. Food and energy prices declined, aiding the slowdown in the growth rate.
In New York, Stock markets fell initially after the interest rate decision and projections, but mostly made up the losses later. The Dow Jones Industrial ended the day down 0.68% at 33,979.33 points. The S&P 500 gained 0.08% to close at 4,372.59 points. The tech-heavy Nasdaq-100 again outpaced the broader indices, closing the session up 0.70% at 15,005.69 points.
In Europe, a few pieces of positive economic data came out on Wednesday. The UK economy expanded by 0.2% in April on the month after a contraction of 0.3% in March. Likewise, industrial production increased in the eurozone by 1% in April when compared to the previous month after having dropped 3.8% in March. The data comes a day before the European Central Bank (ECB) is set to announce its interest rate decision on Thursday. Investors largely expect a 25-basis-point hike. Most European markets ended the day in positive territory with the EuroStoxx 50 finishing the session up 0.65%.
In the Asia-Pacific region, stocks were trading mostly in positive territory on Thursday. In Japan, the Nikkei 225 slowed its recent pace of gains but was still trading up around 0.3% on Thursday. Hong Kong's Hang Seng Index rose 1.2%. In mainland China, the Shanghai Composite was up 0.2%, and the Shenzhen Component was 0.9% higher. South Korea’s Kospi bucked the trend, trading 0.3% lower.
Corporate news in focus: Adobe Q2 figures.
Economic data in focus: Swiss producer and import prices (08:30 CET), French Consumer Price Index (08:45), Swiss State Secretariat for Economic Affairs economic forecast (09:00), eurozone trade balance (11:00), ECB interest rate decision (14:15), US retail sales (14:30), weekly US initial jobless claims (14:30), US import and export prices (14:30), Empire State Index (14:30). ECB Press Conference (14:45).
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Editor: Alessandro Fezzi
Source: LGT Bank (Switzerland) Ltd.