Federal Reserve increases rateAug 3, 2022
- DOW JONES32’396
- WTI CRUDE OIL93.95
The US central bank decided on Wednesday on a second rate hike. The markets were mainly looking for signals on the evolution of its monetary policy
Economic indicators have slowed recently, but inflationary risks remain high and the labour market remains extremely tight. This is essentially how the Federal Reserve justified raising its key rate by 75 basis points on Wednesday evening, in line with market expectations.
The Fed's statement twice mentions the institute's determination to fight inflation, which reached 9.1% in June, a record for more than 40 years, in order to bring it down to the official target of 2%.
The strong results released earlier by Alphabet (the parent company of Google), Microsoft and Texas Instruments, along with optimistic comments for the coming months, gave investors confidence that the economy could weather a slowdown.
This week for the fourth day in a row, the yen held the spotlight. With US bond yields falling, investors closed out their dollar positions and bought back the Japanese currency. The dollar depreciated by 660 points from 137.15 yen to 130.75 yen. Against the Swiss franc, the yen appreciated 200 points to 0.7260.
Swiss Franc gained ground against all major currencies on Friday as the Swiss National Bank said it could make a monetary policy decision "at any time" if circumstances required. Against EUR, the CHF hit a high of 0.9708 while the USD broke through the 0.9600 support level.
US GDP fell by 0.9% in the second quarter of 2022 compared to the first quarter, while the market was expecting a 0.5% improvement. This is the second quarter of decline, which means that the country is in recession. At the same time, the GDP price index grew by 8.7% compared to 8.2% in the first quarter and 8% expected. New jobless claims also rose to 256,000 for the week. The Dollar Index fell slightly after these releases. President Biden said that the slowdown of the economy was normal in view of the FED's fight against inflation. Note that the yield on the 10-year government bond today at 2.72%
Oil prices edged lower overnight before an OPEC+ meeting as traders wait to see whether the group will support or decline a US call to boost crude supplies.
The New York Stock Exchange ended lower at the end of an up-and-down session, as geopolitical tensions were exacerbated by visit to Taiwan, which plunged US-China relations to an all-time low. The Dow Jones index fell to a record low. The Dow Jones index fell to 32,396.30 points. The S&P-500 gave up to 4,091.32 points. The Nasdaq Composite fell to 12,348.76 points. In addition, the US Department of Labor announced that job creation in the US fell in June at its fastest pace in two years.
This morning in Asia, Tokyo closed in the green, erasing part of the previous day's losses thanks to good corporate results. In China, the indices are recovering and are mostly in the green before the close. Nikkei at 27’741.