If Fed Chairman Jerome Powell does indeed announce a rate hike of three-quarters of a percentage point today, it would be the biggest rate hike since November 1994. In any case, the renewed increase in inflationary pressure in May – consumer price inflation in the United States reached its highest level since 1981 at 8.6% – opened the door for a strong Fed response. A stronger and faster increase in key interest rates also raises the risk of a recession, which has been unsettling the investment community for some time.
On Wall Street, the nervousness ahead of today's interest rate decision by the Fed remains palpable. The Dow Jones Industrial could not recover from recent losses and fell again by -0.5% to 30'364.83 points. In the last four days, the Dow lost almost -8%. The S&P 500 closed at 3'735.48 points, -0.38% lower than the previous day. Meanwhile, the yield of ten-year US government bonds climbed to 3.47%, the highest level in eleven years. Profiteer from the prospect of rapidly rising interest rates is the US dollar, which pushes the euro to just under 1.04.
The Asian markets trended inconsistently on Tuesday. Driven by positive news from China with figures from the industry and retail trade, which were slightly above market expectations, the Shanghai Composite gains almost two percent and the Hang Seng in Hong Kong gains around +1.6%. In Tokyo, however, the Nikkei 225 trades around -1% lower.
In the United States, prices at producer level rose by +10.8% in May compared with the same period a year ago. Although this represents a minimal slowdown in price inflation – the rate of increase in April was +10.9% – it remains at a high level. Excluding the driving energy prices, the core rate was +8.3%. Price developments at producer level are partially fed into consumer prices with a slight time lag.
With an inflation rate of +7.9%, German consumer prices in May, driven by price increases for energy and food, rose more strongly on an annual basis than at any time since the turn of 1973/74. Compared with the previous month, the cost of living in Europe's largest economy also increased sharply by +0.9%.
According to the Mannheim-based economic research institute ZEW, economic expectations for Germany brightened slightly in June. The expectations indicator improved at a low level from minus 34.3 to minus 28.0 points (consensus -26.8). Despite the brightening, however, the mood was still dominated by numerous risk factors such as inflation, the change of course in monetary policy, the Ukraine war, and the conflict with Russia, as well as the uncertain pandemic situation in China, the ZEW commented.
|08:00||SZ||Seco Economic Forecast|
|08:00||GE||Wholesale Prices (May, y/y)||+23.8%|
|08:45||FR||Consumer Prices (May, y/y)||+5.8%|
|11:00||EZ||Industrial Production (April, m/m)||-1.8%|
|14:30||US||Retail Sales (May, m/m)||+0.9%|
|14.30||US||Import Prices (May, m/m)||+1.1%|
|14:30||US||NY Fed Empire State Manufacturing (June)||-11.6|
|16:00||US||NAHB Real Estate Index (June)||68.0|
|18:20||EZ||ECB President Lagarde speaks|
|20:00||US||FOMC Monetary Policy announcement||1.00%|
|20:30||US||Fed Press Conference|
Publisher: LGT Bank (Switzerland) Ltd., Glärnischstrasse 36, CH-8027 Zurich
Editor: Alessandro Fezzi, E-Mail: email@example.com
Source: LGT Bank (Switzerland) Ltd.
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