Pass the hangover after the Fed’s rate hike announcement: after flying on the eve of more than +900 points, the Dow Jones clears part of the gains, losing more than 440 points (-1.29%), to 33,620; the S&P 500 fell 1.60%, while the Nasdaq capitulated 2.35%.
The fear of a more hawkish Fed, which President Jerome Powell himself had brought back yesterday, when he said that a 75 basis point squeeze “is not something that the Commission is actively considering”. The S&P 500 had rallied nearly + 3% at 4,300.17; the Dow Jones Industrial Average had flown 932.27 points, or + 2.81% to 34,061.06, the Nasdaq Composite jumped 3.19% to 12,964.86.
Yesterday, as expected, Fed-Day culminated in the announcement of the American central bank, which raised rates by half a percentage point (+50 basis points) to the new 0.75% -1% range. This is the strongest monetary squeeze in the last 20 years, since 2000, which confirms the US central bank’s struggle against galloping inflation.
The Fed also indicated its intention to begin reducing its monstrous $ 9 trillion balance sheet, inflated by its previous purchases of Treasuries and other assets.
During the press conference following the announcement of the rates, Powell repeated several times that inflation “is really too high”.
However, the absence of Hawkish surprises had calmed the markets which, according to data from CME Group, still price rates that will rise to the range between 2.75% and 3% by the end of the year.
In the last few hours, some economists have shown themselves to be more hawkish than Powell himself, as in the case of ING experts: James Knightley, chief economist of the international division, Padhraic Garvey, head of the division of the Americas and Francesco Pesole, market strategist forex.
In their view, US rates will rise to a peak of 3.25% by the end of the year, given “the outlook for inflation, which is much more stubborn than in previous cycles”. The three also stressed in a note that it cannot be ruled out, despite Powell’s assurances, that US rates will be raised by 75 basis points at the June meeting.
The macro data released during the day brought back the pessimism on the US stock market. Data that triggered the alert again on US inflation, which is running at the strongest pace in 40 years.
The jump in the unit cost of US labor in the first quarter of the year, well beyond expectations. According to preliminary data, the figure flew by 11.6%, over the + 9.9% expected by the consensus. The productivity of the United States took a nosedive which, in the same period of time, reported the strongest decline since 1947, falling by 7.5%, well beyond the expected decline of -5.4%.
The boom in unit labor costs has rekindled fears about the surge in inflation in the United States.
The US Treasury market reacted promptly, with ten-year rates having again exceeded the feared threshold of 3%, already exceeded yesterday pending the announcement of the Fed and even earlier in the Monday session.
Headlines include Twitter and Tesla, after CNBC’s David Faber reported that Elon Musk will temporarily hold the position of CEO of Twitter following the completion of the social network acquisition launched by Tesla founder for a value of $ 44 billion.
The current number one of the electric car manufacturer TSLA is expected to hold the position for a few months, reads an article by the CNBC.
The Twitter stock leaps almost + 4% on Wall Street, while Tesla loses -3%.