The determination of central banks to go ahead in their fight against inflation No Matter What, as confirmed by the Fed, the ECB and the Bank of England, brings back to the markets the fear of a global recession.
The more hawkish Fed-ECB-BoE mix and the disappointing data on US retail sales, released in yesterday’s session, brought Wall Street down.
The Dow Jones tumbled 764.13 points, -2.25%, for its worst one-day performance since September.
The S&P 500 and Nasdaq Composite fell 2.49% and 3.23%, respectively.
Yesterday the ECB announced the expected increase of 50 basis points of interest rates on the main refinancing operations, the rates on the marginal lending facility and the rates on the deposit facility, bringing them respectively to 2.50%, to 2.00%. .75% and 2.00%, with effect from 21 December 2022.
The move was widely expected. The factors that triggered the selling were the announcement of the QT-Quantitative Tightening, which will begin in March 2023, and the ECB’s determination to continue raising rates “significantly”, in the face of inflation of the euro area which remains “too high” for Christine Lagarde.
A few hours earlier, Jerome Powell’s Fed had also announced a 50 basis point squeeze on the new range between 4.25% and 4.5%, a record in the last 15 years: this too had been priced by the markets .
What the markets hadn’t factored into was the fact that the dot plot would indicate the US central bank’s intention not to cut rates until at least 2024.
Not only that: again from the Fed’s dot plot it emerged that the estimates on the US terminal rate have been revised upwards to 5.1%.
For its part, the Bank of England BOE also raised UK rates by 50 basis points, bringing them up to 3.5%. The monetary tightening was less than the 75 basis point one launched in November.
As the Fed and the ECB have done, the Bank of England raised rates less aggressively than in previous meetings, however confirming its determination to move forward in the fight against the price spike, indicating its intention to continue proceed “strongly if necessary” to bring UK inflation back.
Even at the cost of a recession. The series of announcements by central banks was accompanied by the publication, in the United States, of retail sales in November, which fell by 0.6%, double the 0.3% drop estimated by the consensus of analysts interviewed by Dow Jones.
On an annual basis, retail sales increased by 6.5%, against an inflation rate which, as emerged a few days ago, is equal to 7.1% on an annual basis.
The sell-offs also hit Asian stock exchanges, even if an attempt to recover is seen in the final stages.
The Hong Kong Stock Exchange rises by 0.35%. Down instead Sidney -0.78%, Seoul -0.37%, Shanghai -0.23%, while the worst stock index is the Nikkei 225 of the Tokyo stock exchange, which falls by 1.87%.
In the pre-market, after the strong sell-offs on the eve, US futures are traveling just below parity.
From the macro front of Japan, the manufacturing PMI index compiled jointly by Jibun Markit and S&P Global was released, dropping to 48.8 points, compared to 49 in the final November figure, the lowest since October 2020, and clearly contraction phase. This is what emerges from the preliminary reading of the data.
The contraction phase is confirmed by the fact that the manufacturing PMI settled (even accelerating downwards) at a level below 50 points, the dividing line between the contraction phase – values below – and expansion phase – values above .
“Manufacturers continued to struggle amid weak demand conditions and strong inflationary pressures,” said S&P Global, commenting on the data.
The trend of the PMI services index for Japan improved, accelerating the expansion phase, rising to 51.7 points, compared to 50.3 in November.