(Bloomberg) — US equity futures wavered as the Federal Reserve’s hawkish decision gave way to optimism that a recession will act as a circuit breaker for aggressive action. The yen rallied after Japan intervened to support the yen and global central banks hoisted up their own borrowing costs.
(Bloomberg) — US equity futures wavered as the Federal Reserve’s hawkish decision gave way to optimism that a recession will act as a circuit breaker for aggressive action. The yen rallied after Japan intervened to support the yen and global central banks hoisted up their own borrowing costs.
Contracts on the S&P 500 swung between losses and gains after the benchmark’s tumble Wednesday took it more than 20% below the record high in January. The Stoxx Europe 600 fell 0.8% in the wake of losses from Wall Street to Hong Kong following the Fed’s third consecutive 75 basis-point hike on Wednesday.
The yen rose after Japan’s first intervention since 1998 shored up the currency’s 20% slide against the dollar this year. In contrast to the Fed, the Bank of Japan stuck steadfastly to its rock-bottom interest rate policy Thursday, pushing the yen lower versus the US currency.
The Fed gave its clearest signal yet that its willing to tolerate a recession as the necessary trade-off for regaining control of inflation with officials signalling a further 1.25 percentage points of tightening before yearend.
“The Fed is engineering a hard landing — a soft landing is almost out of the question,” Seema Shah, chief global strategist at Principal Global Investors, wrote in a note following the Fed decision. “Powell’s admission that there will be below-trend growth for a period should be translated as central bank speak for recession. Times are going to get tougher from here.”
Read more: Powell Signals Recession May Be the Price for Crushing Inflation
Traders are also bracing for the Bank of England to deliver its seventh back-to-back rate hike later today, after contending with outsized moves by central banks in Switzerland and Norway rushing to get to grips with inflation spiraling out of control.
The Swiss National Bank matched the Fed by raising interest rates 75 basis points to bring borrowing costs above zero for the first time in almost eight years. Norway’s central bank, among the first in the rich world to start raising rates last September, raised its key interest rate by a half point and signaled that its tightening may be nearing an end.
Sentiment took an additional hit from Russia’s escalation of its war with Ukraine and tensions between Beijing and Taiwan.
Key events this week:
- The Bank of England interest rate decision, Thursday
- US Conference Board leading index, initial jobless claims, Thursday
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Here are some of the main moves in markets:
Stocks
- Futures on the S&P 500 were little changed as of 5:55 a.m. New York time
- Futures on the Nasdaq 100 were little changed
- Futures on the Dow Jones Industrial Average rose 0.2%
- The Stoxx Europe 600 fell 0.8%
- The MSCI World index fell 0.3%
Currencies
- The Bloomberg Dollar Spot Index was little changed
- The euro rose 0.2% to $0.9860
- The British pound rose 0.2% to $1.1297
- The Japanese yen rose 0.6% to 143.20 per dollar
Bonds
- The yield on 10-year Treasuries advanced one basis point to 3.54%
- Germany’s 10-year yield declined four basis points to 1.85%
- Britain’s 10-year yield declined two basis points to 3.29%
Commodities
- West Texas Intermediate crude rose 0.9% to $83.66 a barrel
- Gold futures rose 0.2% to $1,678.70 an ounce
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