As expected, Fed Chairman Jerome Powell initiated the interest rate turnaround in the US last night, making the first interest rate tightening since the beginning of the corona pandemic a fact. Most market participants had expected the key interest rate to be raised by a quarter of a percentage point to a range of 0.25-0.50%. At the same time, the Fed Chairman held out the prospect of further interest rate steps. According to current projections, the Fed will raise the key interest rate to as high as two percent by the end of this year, meaning that a 25-basis point increase can be expected at each of the six meetings still to come. The central bank is currently even targeting an interest rate of 2.8% by the end of 2023.
The faster and stronger-than-anticipated rise in inflation would certainly have justified a more substantial increase in interest rates – at just under 8%, the inflation rate in the US reached its highest level in 40 years – but the war in Ukraine is causing a high degree of uncertainty and potentially negative effects on the global economy, which the Fed also took into account in its decision.
As not only significantly higher key interest rates are to be expected, but also a rapid reduction in the central bank's balance sheet from its current level of USD 9 trillion, financial markets and in particular the stock exchanges will have to cope with less liquidity. On Wall Street, investors reacted well to the Fed's interest rate decision, which had been communicated transparently in advance. The Dow Jones Industrial went out with a solid daily gain of +1.55% at 34'063.10 points at the daily high. The S&P 500 gained as much as +2.24% to 4'357.86 points and on the Nasdaq technology exchange, the indices posted daily gains of around +3.5%. Optimism is also provided by hopes for some rapprochement between Russia and Ukraine in the ongoing talks. On the bond market, the yield on ten-year US government securities rose in the meantime to about 2.24% and is now quoted at 2.14%.
In Asia's equity markets, the first interest rate move by the Federal Reserve was also well received. In Tokyo, the 225-stock Nikkei index gains about +3.5% and in Hong Kong, the Hang Seng index even rises by about +6.5%.
Today at 13:00 (CET), Great Britain's central bank will also communicate its further course of action. In December and February, the British central bank was the first G7 central bank to raise its key interest rate twice to counter the sharp rise in inflation. Today, a third-rate hike of a quarter of a percentage point to +0.75% could follow, because the Bank of England itself assumes that the inflation rate could rise above +7%. Currently, the annual inflation rate is around +5.5%.
In the United States, retail sales rose only moderately by +0.3% in February (consensus +0.4%), but sales in January were again significantly stronger at +4.9% than the initial estimate of +3.8%.
Russia's Foreign Minister Sergey Lavrov nurtured hopes (not for the first time) of a compromise in the negotiations between Russia and Ukraine. The idea is that Ukraine could declare itself neutral, in conjunction with security guarantees. The Ukrainian government is understandably suspicious of this option. On the one hand, government representative Mychajlo Podoljak spoke of very difficult and tough negotiations with fundamental differences, but on the other hand, he said there was some room for compromise. The Financial Times had reported that the two warring parties were working on a 15-point plan that included the neutrality and demilitarization of Ukraine demanded by Russia and the withdrawal of Russian troops demanded by Ukraine. The Ukrainian side confirmed that such a draft existed, but at the same time dampened expectations. It said the plan only reflected Russian demands and “nothing more.” Regarding a possible meeting between the two presidents Vladimir Putin and Volodymyr Selensky, Russian Foreign Minister Lavrov expressed a negative view. He said that this would only be possible if concrete agreements were reached between Russia and Ukraine.
|09:00||AUT||Consumer Prices (February, y/y)||+5.5%|
|10:30||EZ||ECB President Lagarde speaks|
|11:00||EZ||Consumer Prices (February, y/y)||+5.8%|
|11:00||EZ||Core Consumer Prices (February, y/y)||+2.7%|
|13:00||UK||Bank of England Monetary Policy Announcement||+0.5%|
|13:30||US||Housing Starts (February, m/m)||-4.1%|
|13:30||US||Building Permits February, m/m)||+0.5%|
|13:30||US||Initial Jobless Claims (weekly)||227,000|
|13:30||US||Philly Fed Manufacturing (March)||+28.1|
|14:15||US||Industrial Production (February, m/m)||+1.4%|
|SZ||Swatch||Annual Press Conference|
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Source: LGT Bank (Switzerland) Ltd.
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