How big will the rate hike be?
Doubts about the Fed – Dow falls by 1000 points
5/5/2022, 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 going down sharply.
Investor fears of ever-bigger rate hikes by the US Federal Reserve boomeranged back on US stock markets and sent Wall Street plummeting. Of the Dow Jones Index loses more than 1000 points or 3.6 percent to 32,828 points. The broader one S&P500 falls by 4.1 percent to 4121 points. The index of the technology exchange Nasdaq fell by up to 5.3 percent to 12,272 points and is heading for its blackest trading day since June 2020.
The day before, the stock exchanges had gained more than three percent after the central bank had raised interest rates by 50 basis points as expected. Fed Chair Jerome Powell specifically ruled out a 75 basis point rate hike in an upcoming meeting. Nonetheless, investors’ fears of aggressive monetary tightening in the face of high inflation quickly flared again. The CBOE volatility index, also known as Wall Street’s fear gauge, rose to 31.73 points.
“I would say that the markets are not buying into the Fed’s dovishness,” said Callie Cox, US investment analyst at broker eToro. Some Fed members have already insisted that interest rates must rise faster and immediately, said Cox. “So it makes sense that investors are returning to this place of fear that the Fed could do much more than they imagined to use monetary policy to fight inflation.” In futures markets, bets of a 75 basis point rate hike increased at the Fed’s June meeting.
This view gave the US dollar a boost: the dollar index rose by 1.3 percent to 103.88 points. The euro slipped below the $1.05 mark and is approaching its five-year low of $1.0470 reached in late April. Investors are puzzled as to when the European Central Bank could follow the Fed’s example and also initiate the turnaround on interest rates.
In any case, the Bank of England raised interest rates by a quarter point to 1.0 percent. However, the decision was not unanimous: three currency watchdogs had requested an even larger step to 1.25 percent in vain. But there were fewer supporters than market participants had hoped, said Naeem Aslam, chief market analyst at brokerage firm AvaTrade. Sterling came under pressure as a result, falling more than 2 percent to $1.2331.
Investors also had to process a flood of company balance sheets. A disappointing view broke Etsy the biggest drop in prices in nine months. The shares of the online marketplace specializing in handicrafts slipped by 16.8 percent. Also eBay fell under the wheels after a worse-than-expected forecast by the online retailer and fell by 10.8 percent. The online furniture retailer Wayfair shocked investors with an unexpectedly large loss and the departure of its chief financial officer. The titles collapsed by more than 21 percent.
A quarterly result above market expectations and the prospect of bubbling profits brought the lithium producer Albemarle on the other hand, a good trading day. Shares in the global industry heavyweight rose 4.5 percent.