U.S. equity futures slumped lower Thursday, giving back all of yesterday’s post Fed decision gains, as investors re-set prices on risk assets around the world in anticipation of faster near-term rate hikes and relentlessly high inflation.
The Federal Reserve delivered its biggest rate hike since 1994 yesterday, boosted its Fed Funds rate by 75 basis points to a range of between 1.25% and 1.5%.
Fed Chair Jerome Powell said similarly-sized rate hikes won’t be ‘common’, but he nonetheless indicated another could follow in July, with smaller hikes into the autumn, as the central bank raised its forecasts for annual inflation and slashed its GDP growth rate.
Powell’s indication that a bigger, perhaps even 100 basis point rate hike appears off the table gave stocks an initial boost, but the expectation of slower growth, faster inflation and rising unemployment gave way to concerns over a near-term recession, particularly after the Atlanta Fed’s GDPNow forecasting tool indicates U.S. growth has stalled even as inflation surges to the fastest pace in forty years.
“We’re not trying to induce a recession, let’s be clear about that,” Powell told reporters in Washington. “Our goal is to get 2% inflation while keeping the labor market strong. This is a strong labor market. The pathways ahead have become much more challenging.”
Nevertheless, rate traders are pricing in an 81.4% chance of a 75 basis point rate hike in July, as well as a 27.7% chance of a similar-sized move in September, according to the CME Group’s FedWatch.
The Fed’s hike, its third under Powell, was followed by a surprise move by the Swiss National Bank, which lifted its key lending rate for the first time in 15 years Thursday as the alpine economy attempts to fend off inflationary pressures from its Eurozone neighbors.
The Bank of England also boosted rates today, taking its benchmark Bank Rate 25 basis points higher to 1.25%, as inflation in the Brexit hit economy looks to surpass 10% in the coming months,
Given the current macroeconomic challenges, it is imperative that investors monitor how different markets and assets are faring, rethinking their strategies accordingly,” said Jatin Ondhia of London-based Shojin Property. “Diversification and agility could prove key in navigating this testing climate, and it should be expected that most resilient markets – such as real estate – will continue to attract investor demand.”
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The collective central bank tightening kept stocks in the red overnight, with Asia’s MSCI ex-Japan index falling 1% and Europe’s region-wide Stoxx 600 down 2.25% in mid-day Frankfurt trading.
In the U.S., benchmark 10-year Treasury bond yields dipped to 3.435%, with 2-year notes at 3.343%, while and the dollar index rose 0.05% against a basket of six global currencies to 105.209 in early New York trading.
On Wall Street, futures tied to the Dow Jones Industrial Average indicating a 500 point opening bell slump while those linked the S&P 500 are priced for an 80 point retreat. Futures linked to the Nasdaq are looking at 290 point opening bell pullback.
Tesla (TSLA) – Get Tesla Inc. Report shares moved lower in pre-market trading after the carmaker unveiled across-the-board price hikes for its U.S. models, indicating input cost pressures that could pressure near-term profit margins.
Shares were also likely pressured by indication the CEO Elon Musk will reiterate his desire to close the $44 billion take-private deal for Twitter (TWTR) – Get Twitter Inc. Report when he meets with staff at the microblogging website later today in San Francisco.
Revlon (REV) – Get Revlon Inc. Report shares slumped lower in pre-market trading after the cosmetics group filed for Chapter 11 bankruptcy protection of its U.S. business.
Saddled with around $3.3 billon debt and suffering from supply chain snarls and increasing competition from nimbler rivals, Revlon listed liabilities of between $1 billion and $10 billion in its Chapter 11 filing with the Bankruptcy Court for the Southern District of New York.