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Share markets, bonds jump after US Fed’s 75 bps interest rate hike; oil, gold, Bitcoin gain after FOMC meet

Stocks extended a rally Thursday, bonds rose and the dollar held losses as the prospect of a slower pace of Federal Reserve monetary tightening filtered across global markets.

Share markets, bonds jump after US Fed’s 75 bps interest rate hike; oil, gold, Bitcoin gain after FOMC meet
The Fed raised rates by 75 basis points for a second month, said such a move is possible again and reiterated its commitment to fighting inflation (Bloomberg)

Stocks extended a rally Thursday, bonds rose and the dollar held losses as the prospect of a slower pace of Federal Reserve monetary tightening filtered across global markets. Shares climbed in Japan, Australia and South Korea, though the gains were more modest than in the US, where the S&P 500 rose 2.6% and the tech-heavy Nasdaq 100 had its best day since 2020. US equity futures dipped. The Fed raised rates by 75 basis points for a second month, said such a move is possible again and reiterated its commitment to fighting inflation. But Chair Jerome Powell added the pace of hikes will slow at some point and the Fed will set policy meeting-by-meeting, avoiding explicit guidance on hike increments.

Treasuries advanced, lowering the 10-year yield to 2.76%. Swaps tied to the date of Fed policy meetings imply a 3.3% peak for the fed funds rate around year-end — not much higher than the current range of 2.25% to 2.5%. Oil, gold and Bitcoin are also up in the wake of the Fed meeting.

Major indexes gain after Fed raises by 75 basis points again

The knee-jerk relief in markets on possible crumbs of comfort from the Fed outlook echoes a pattern seen after earlier hikes. Those bouts of optimism stumbled on recession risks from a global wave of monetary tightening, Europe’s energy woes and China’s property sector and Covid challenges.

“This market move is the victory of hope over experience,” Jeffrey Rosenberg, senior portfolio manager for systematic fixed income at BlackRock Inc., said on Bloomberg Television. “I’d be a little bit cautious here.” New York Fed President Bill Dudley said financial markets are underestimating just how far the Fed will go to tame decades-high price pressures. The next key data are US growth and a read on cost pressures. The nation is seen avoiding a technical recession amid a cooling in the core PCE deflator.

Bloomberg

Terminal Rate

The Fed can’t “downshift gears too much” given that core inflation is poised to decline at a “glacially slow pace,” Seema Shah, chief global strategist at Principal Global Investors, wrote in a note. She expects the Fed to lift borrowing costs above 4% next year. The latest US earnings were mixed. Facebook parent Meta Platforms Inc. posted its first ever quarterly sales decline. Chip firm Qualcomm Inc. gave a lackluster forecast. Ford Motor Co.’s performance beat estimates. Best Buy Co. cut its profit forecast, saying inflation is hitting consumer demand.

Elsewhere, there was some progress on President Joe Biden’s economic agenda. Senator Joe Manchin and Majority Leader Chuck Schumer struck a deal on a tax and energy policy bill. Traders are awaiting a phone call between Biden and Chinese counterpart Xi Jinping, which could touch on US tariffs and other points of tension. Separately, Securities and Exchange Commission Chair Gary Gensler said the US and China must reach an agreement “very soon” over access to audit work papers for Chinese firms. Otherwise they face being kicked off US exchanges.

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