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Markets trade strong ahead of tricky Fed decision

Equity markets were making gains to start Wednesday’s session ahead of a difficult interest rate decision by the Federal Reserve due in the evening. The central bank is stuck between a rock and hard place as battling stubbornly high inflation with higher rates could potentially exacerbate weaknesses in the financial sector. Market participants are nevertheless mostly in agreement about the Fed’s move later Wednesday, largely anticipating a moderate 25-basis-point hike.

Alessandro Fezzi, LGT
Temps de lecture
5 minutes
Federal Reserve written on a wall
© Shutterstock

Expectations for the Fed’s future rate hikes fell rapidly in recent weeks after three US banks - Silicon Valley Bank, Silvergate and Signature Bank - collapsed and Swiss banking giant Credit Suisse came under pressure. Recent moves by US authorities and a regulator-engineered agreement by UBS to take over Credit Suisse have settled market nervousness in recent days. In addition to guaranteeing deposits at two of the failed US banks, Treasury Secretary Janet Yellen said Tuesday that US authorities are looking into ways to protect bank depositors at smaller institutions if needed to ensure stability in the financial sector. Investors will not only watch out for the Fed’s interest rate decision on Wednesday evening but will also carefully note any details from Federal Reserve Chairman Jerome Powell about how the central bank plans to keep the recent banking turmoil contained.

Measures already taken by central banks and the swift Credit Suisse takeover deal in Switzerland provided an increased sense of calm on markets Tuesday and a backdrop for bank stocks to come roaring back from the huge losses of recent trading sessions. The US banking benchmark KBW Bank Index ended Tuesday up nearly 5% while UBS stock gained about 12%.

Stock indices in New York also soared on Tuesday on the renewed sense of calm. The Dow Jones Industrial closed up almost 1% at 32,560.60 points and the S&P 500 gained 1.3%, finishing the day above the psychologically important 4,000-mark at 4002.87 points. On the Nasdaq, the indices gained about 1.4%, bringing the tech stock indices back to levels last seen in early February.

Markets in Asia were also making strong gains in early Wednesday trading. In Japan, the Nikkei 225 was trading up more than 2%. In Hong Kong, the Hang Seng Index rose about 1.7% and the Hang Seng Tech Index gained 0.9%. In mainland China, the Shanghai Composite and the Shenzhen Component were up about 0.1% and 0.3%, respectively.

Corporate news in focus: No major corporate news scheduled for Wednesday.

Economic data in focus: UK Consumer Prices Index for February (08:00 CET), ECB President Christine Lagarde speaks at conference in Frankfurt (09:45) and Fed interest rate decision (19:00) followed by press conference (20:30).

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Publisher: LGT Bank (Switzerland) Ltd., Glärnischstrasse 36, CH-8027 Zurich
Editor: Alessandro Fezzi,
Source: LGT Bank (Switzerland) Ltd.

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