GLOBAL MARKETS – Stock markets rise after Fed rate hike, as crude oil prices rise

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U.S. stocks rose and Treasury yields fell on Wednesday after the Federal Reserve hiked interest rates by 50 basis points as expected and said it would start shrinking its balance sheet in June, a perceived move as less warmongering than some had anticipated. The Federal Reserve raised the federal funds rate to a range of 0.75% to 1% in a unanimous decision, the largest increase in the overnight rate in 22 years. A political statement that generally met expectations elicited only minimal initial reaction. Stocks jumped and bond rates erased earlier gains after Fed Chairman Jerome Powell said the Fed was not “seriously” considering a 75 basis point rate hike. “When he said they weren’t actively looking at 75 basis points, that was the major turning point,” said Brian Jacobsen, senior investment strategist at Allspring Global Investments.

Germany’s 10-year government bond traded near multi-year highs, hitting its highest yield since June 2015 at 1.036%, after European Central Bank board member Isabel Schnabel said a July rate hike was possible. Overnight in Asia, many Chinese and Japanese stock markets were shut down. Oil prices rose about 5% as the European Union, the world’s largest trading bloc, announced plans to phase out imports of Russian oil, offsetting demand concerns in China, the first importer. European Commission President Ursula von der Leyen has proposed a gradual oil embargo on Russia over its war in Ukraine, as well as sanctioning Russia’s top bank, in a bid to deepen Moscow’s isolation . U.S. crude futures gained $5.40 to settle at $107.81 a barrel and Brent rose $5.17 to $110.14. Gold rebounded after Powell flagged the risks to the economy from soaring inflation. Earlier, US gold futures stabilized 0.1% at $1,868.8 an ounce.

“At worst, the Fed wants to meet market expectations. At best, they want to go slower or lower than the market was pricing,” he said. The dollar index fell 0.86% and the euro rose 0.89% to $1.0614, while the yield on 10-year Treasury notes fell 3.1 basis points to 2.927%. Risk assets rallied, causing a “softening of the U.S. dollar, a classic ‘buy the rumour, sell the fact’ trade, while driving demand for Treasuries,” said Michael Brown, chief intelligence officer. market at Caxton in London. “While hawkish in itself, the decision is somewhat accommodating to high market expectations,” he said. The MSCI gauge of stocks across the world closed up 1.67%. On Wall Street, the Dow Jones Industrial Average rose 2.81%, the S&P 500 gained 2.99% and the Nasdaq Composite gained 3.19%. Stocks closed lower in Europe on disappointing earnings and investor uncertainty ahead of the Fed’s decision. The pan-European STOXX 600 index fell 1.1% as retailers led the sector’s losses, and major regional indexes also fell.

The global cycle of monetary tightening has reached a symbolic milestone, with yields on German, UK and US 10-year government debt exceeding 1%, 2% and 3% respectively, levels not seen in years. This in turn has increased borrowing costs for businesses and households. The Bank of England is expected to hike UK rates by a quarter of a percentage point on Thursday, which would be its fourth straight hike to stifle soaring prices. The Australian dollar gained as much as 1.3% and local equities fell, following the Australian central bank’s bigger than expected 25 basis point rate hike on Tuesday. Bitcoin rose 5.68% to $39,871.90 after an earlier decline.

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  • GLOBAL MARKETS – Stock markets rise after Fed rate hike, as crude oil prices rise
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