How big will the rate hike be?
Doubts over the Fed – Dow drops 1000 points
05/05/2022, 8:08 p.m.
US Federal Reserve Board Chairman Powell has expressly assured that the next interest rate hike will not be higher than recently. But there are doubts in the market. The indices are down sharply.
Investor fears of ever-bigger rate hikes from the US Federal Reserve spilled over into US equity markets and sent Wall Street plummeting. Of Dow Jones index loses more than 1000 points or 3.6% at 32,828 points. The largest S&P500 down 4.1% to 4121 points. The Technology Exchange Index Nasdaq fell as low as 5.3% at 12,272 points and is heading for its blackest trading day since June 2020.
The day before, stocks had gained more than 3% after the central bank raised interest rates by 50 basis points as expected. Fed Chairman Jerome Powell specifically ruled out a 75 basis point rate hike at an upcoming meeting. Nevertheless, investor fears of aggressive monetary tightening in the face of high inflation quickly revived. The CBOE Volatility Index, also known as the Wall Street Fear Gauge, hit 31.73 points.
“I would say the markets aren’t buying Fed complacency,” said Callie Cox, US investment analyst at brokerage eToro. Some Fed members have already insisted that interest rates need to rise faster and immediately, Cox said. “So it makes sense that investors are coming back to this fear that the Fed could do a lot more than they imagined to use monetary policy to fight inflation.” In futures markets, bets on a 75 basis point rate hike increased at the June Fed meeting.
This view gave the US dollar a boost: the dollar index rose 1.3% to 103.88 points. The euro slipped below $1.05 and is approaching its five-year low of $1.0470 hit in late April. Investors are perplexed as to when the European Central Bank might follow the Fed’s lead and begin the interest rate recovery as well.
Either way, the Bank of England raised interest rates by a quarter point to 1.0%. However, the decision was not unanimous: three currency watchdogs had unsuccessfully requested an even bigger step to 1.25%. But there were fewer supporters than market participants had hoped, said Naeem Aslam, chief market analyst at brokerage firm AvaTrade. The pound came under pressure as a result, falling more than 2% to $1.2331.
Investors also had to deal with a flood of corporate balance sheets. A disappointing view shattered Etsy the biggest drop in prices in nine months. Online market share specializing in crafts fell by 16.8%. As well ebay fell under the wheels after a worse-than-expected forecast by the online retailer and fell 10.8%. online furniture store Wayfair shocked investors with a surprisingly large loss and the departure of its chief financial officer. Securities fell more than 21%.
A quarterly result that beat market expectations and the prospect of booming profits brought the lithium producer Albemarle on the other hand, a good trading day. Shares of the global industry heavyweight rose 4.5%.