Dow futures -1.73% at 30138
S&P futures -2.1% at 3711
Nasdaq futures +2.4% at 11311
FTSE +2.66% at 7082
Dax -2.75% at 13450
Euro Stoxx -2.14% at 3444
Fed willing to risk a recession
US stocks are pointing to a sharply weaker start after gains yesterday and as the fust settles on the Fed rate decision.
As expected, the US central bank raised interest rates by 75 basis points, it largest hike in close to 30 years. The aggressive hike by the Fed and the fact that it sees rates at 3.4% by the end of the year suggests that the Fed is prepared to take the US into recession to bring inflation down.
Following the move and today’s disappointing data, fears of a recession are growing, and the market mood has soured considerably.
On the data front, housing starts weakened in May, with both permits and housing starts falling by more than expected to the lowest level since October last year. Hosing starts full 14.4% and building permits fell 7%, both well below forecasts and highlighting the impact that higher interest rates are having.
US jobless claims also indicated that the labor market is calming. Initial jobless claims came in at 229k, just below the upwardly revised 232k for the previous week.
Elsewhere the BoE and the SNB hiked rates. The SNB was a shock to the market particularly given the ECB’s refusal to be rushed on raising rates. However what is clear is that the backdrop has changed rapidly and much tighter conditions, are keeping stocks and riskier assets out of favor.
In corporate news:
Tesla drops sharply pre-market after the EV maker raised prices for all its car models in the US, reflecting rising costs and ongoing supply chain issues.
Twitter rises as Elon Musk is expected to reiterate his desire to own the social media giant.
Where next for the Dow Jones?
FX markets – USD steadies, CHF jumps.
USD is holding steady after paring earlier gains following the Fed’s 75bp rate hike. Data is starting to show some weakness coming through, which combined with rising interest rates is raising concerns of a recession.
EUR/CHF drops sharply lower after the SNB unexpectedly raised interest rates by 50 basis points. The SNB, possibly the most dovish of the major central banks, caught the market by surprise with its shock move as it looks to rein in inflation and after the Fed’s outsized hike.
GBP/USD is rising after the BoE raised interest rates by 25basis points as expected. This was the fifth straight meeting that the BoE hikes rates taking the lending rate to 1.25%, its highest level in 13 years as the central bank battles surging inflation. The BoE now expects inflation to rise to 11%, up from 10% in the previous meeting. Economic growth in Q2 was also downwardly revised by 0.3%
GBP/USD +0.4% at 1.2210
EUR/USD -0.27% at 1.0425
Oil falls to a two-week low
Oil prices are heading lower following central bank action, dropping to a two-week low. The Fed, the BoE and the SNB all all hiked rates, in moves that will tighten financial conditions and slow global growth, hurting the demand outlook. Furthermore, the stronger USD is making oil more expensive to buyers with foreign currency, weighing on demand.
Still, losses are being capped as tight supply continues to be an important feature of the oil market. In addition to the obvious Russian supply issues, Libya has seen output collapse to 100k-150k bpd, a mere fraction of the 1.2 million barrels seen last year.
Tightness in the market has been further highlighted by a report by the EIA which said that it expects demand to continue rising in 2023 to a record 101.6 million barrels per day.
WTI crude trades -1.3% at $115.30
Brent trades -1.2% at $118.80