The New York Stock Exchange welcomed with relief the determination of the US central bank (Fed) to curb inflation by sharply raising its reference rates on Wednesday.
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According to the final results, the Dow Jones index was up 1.00% to 30,668.53 points, the S&P 500 was up 1.46% to 3,789.99 points and the tech-heavy Nasdaq was up 2.50% to the 11,099.15 points.
At the end of the meeting of its monetary committee, the Federal Reserve raised its reference rates by 0.75 percentage points, to place them in a range between 1.50 and 1.75%. This is the strongest monetary tightening since 1994.
“The Fed has underscored the seriousness of its mission with its first 75 basis point (0.75 percentage point) rate hike since 1994, moving quickly in anticipation of an acceleration in inflation,” said Chris Low, chief economist at FHN Financial. .
“For the first time in years, the Fed is trying to reverse inflation that is already well above its target,” the analyst added.
For Peter Cardillo of Spartan Capital, “the Fed spoke strongly and the market liked that.” “Although the bear market will continue for a while, it has reacted favorably and bond yields have fallen after the strong rise at the beginning of the week,” the analyst said.
Hard or soft landing?
Jerome Powell, chairman of the Fed, emphasized in his press conference that “the economy was still strong and that he thought he could achieve a soft landing by reducing the Fed’s balance sheet and raising rates,” Cardillo added.
“Personally I doubt it, I think we are heading towards a moderately hard landing,” said the analyst, referring to the slowdown in the economy that the monetary authorities are seeking to calm the rise in prices.
Inflation reached a one-year high of 8.6% in the United States and Jerome Powell assured that the Central Bank was “determined to bring inflation back to the 2% target”.
Ventura Wealth Management’s Tom Cahill also believes it will be difficult to orchestrate a soft landing, that is, avoiding a recession or rising unemployment.
But the market appreciated, he said, the fact that the Fed remains open “to raising rates 50 basis points or 75 points at the next meeting in July.” “This option is welcome, because the market fears that the Fed is doing too much.”
Ten-year US government bond yields, which move in the opposite direction of their price, reacted favourably, falling to 3.29% from 3.47% a day earlier, which was a high since 2011.
The dollar weakened a bit after rising to a 20-year high on Tuesday. The dollar index, which compares the greenback to a basket of other currencies, fell 0.77% to 104.70 points. Against the euro, it was worth 1.0453 dollars for one euro (-0.34%).
For its part, a very rare event, the European Central Bank (ECB) had previously held an emergency meeting in order to calm tensions over debtor rate differentials between the countries of the euro zone.
The day’s indicators continued to reflect a US economy hit by rising prices and crippled by supply chain bottlenecks.
Contrary to analyst expectations, US retail sales fell 0.3% in May, while consumer purchasing power fell sharply.
As for manufacturing activity in the New York region, as measured by the Fed’s Empire State Index, it continued to contract in June.
Investors fled cryptocurrencies and the risk asset bitcoin, which fell to $21,566 (-1.82%).
All sectors of the S&P 500, except energy, recovered, with consumer discretionary leading (+3.02%), followed by communication (+2.36%) and real estate (+2.33%).
Several titles, especially in distribution, which had fallen sharply at the beginning of the week, rebounded strongly, such as the online car seller Carvana (+16.78%) or the pet food Chewy (+8.10%) . The car rental company Hertz, which announced the repurchase of its own shares for 2,000 million dollars, rose 5.05% while Avis, on the eve of vacation departures, accelerated 7.94%.
Vaccine maker Moderna was hailed (+5.73% to $128.53) after crucial step towards vaccinating infants and young children against Covid-19 was taken, with experts favoring recommendation for authorization of its serum, as well as that of Pfizer (+1.23% to $48.51).
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