The Federal Reserve (Fed) tightened the reins for the second time and raised the key interest rate by 50 basis points, as expected by most market participants. Fed Chairman Jerome Powell stressed that inflation is far too high and that the central bank must act quickly to curb inflation. A further sharp increase in the interest rate level will therefore have to be expected. According to Powell, however, even larger interest rate hikes of 75 basis points, for example, are not to be expected at present. In addition, the central bank will reduce its balance sheet total from June onwards, which means that the supply of liquidity will be sharply curtailed. However, Powell also warned that it will be a major challenge to ensure that the economy does not cool down too much or even fall into recession. He added, however, that the labor market is currently in solid shape. The next interest rate decision by the Federal Reserve is scheduled for June 15.
On Wall Street, the Fed's new interest rate move was received positively. The Dow Jones Industrial rose sharply and closed +2.81% higher at 34'061.06 points. The S&P 500 also turned after the interest rate decision into the plus and achieved a daily gain of almost +3% – closing level: 4'300.17 points. On the Nasdaq technology exchange, the indices gained about +3.5%. At the beginning of the week, the technology indices had fallen to the lowest level since spring 2021.
In the bond market, the yield on ten-year government bonds fell to 2.92%. At the beginning of the week, the yield still scratched the three-percent mark.
According to the monthly report of the private US labor market service provider ADP, job growth in the private sector slowed quite significantly in April compared to the previous month. According to the report, 247'000 new jobs were reported, compared with a consensus expectation of 383'000 and a revised prior month reading of 479'000 jobs (first estimate 455'000). The ADP report provides a hint, in a sense, to the official labor market report from Washington due tomorrow Friday.
The British central bank will follow the Fed today and raise its key interest rate another time. The monetary policy decision will be communicated at 13:00 CET. The majority of economists expects an increase of 0.25 percentage points to +1.0%, which will bring the key interest rate to its highest level since 2009. With the further interest rate step, the Bank of England will counter the sustained and broad-based rise in prices. Higher energy costs have also led to the sharpest rise in retail prices in the UK for more than a decade. In April, prices increased by +2.7% over the year. Food prices rose by as much as +3.5%.
The latest results of the purchasing managers' surveys in the euro area showed a slight improvement in the sentiment of the companies surveyed in the private sector. The mood is being carried by service providers, which benefited from the relaxed corona restrictions. Industry, on the other hand, is suffering from supply problems in global goods trade and shortages of materials. Overall, however, the composite purchasing managers' index (PMI Composite) for the entire private sector in the eurozone climbed to 55.8 in April from 54.9 points in March, even reaching its best level in around six months. According to S&P chief economist Chris Wiliamson, the euro economy is showing surprising resilience in the face of the Ukraine war.
Germany's export balance shows the consequences of the Ukraine war. For example, exports in March fell sharply by -3.3% compared with the previous month. Exports to Russia plummeted by a good -60% compared with the previous month. On an annual basis, the overall balance remains at least positive, and Germany exported +8.1% more of its goods to the world in March than a year earlier. Imports even increased by around +20% year-on-year.
|08:00||GE||Industrial Orders (March, m/m)||-2.2%|
|08:30||SZ||Consumer Prices (April, y/y)||+2.4%|
|08:45||FR||Industrial Production (March, m/m)||-0.9%|
|10:30||UK||PMI Composite (April)||57.6|
|13:00||UK||Bank of England Monetary Policy Announcement||+0.75%|
|13:00||UK||Bank of England Inflation Report|
|14:30||US||Initial Jobless Claims (weekly)||180,000|
|15:15||UK||Bank of England Governor Bailey speaks|
|UK||BAE Systems||Q1 Sales|
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Source: LGT Bank (Switzerland) Ltd.
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