Stocks recover ahead of Fed
Stock markets have rebounded from the brutal losses that were witnessed yesterday as government bond yields have cooled a touch. This time 24 hours ago, there was speculation the Federal Reserve might hike rates by 75-basis points this evening, while previously the bank signalled a 50-basis point lift. Even though equities are higher, indices such as the FTSE 100 and the S&P 500 are still down considerably on the week. Although some buyers have entered the fold, the fact the markets have yet to a make a full recovery suggests demand is not overly strong. It is unlikely there will be much activity on the run up to the Fed announcement. The minutes from the May meeting showed that most central bankers are keen to hike by 0.5% this evening and in July, but as mentioned above, lately there have been chatter of a 0.75% increase. Amid all the whispers about a large rate hike from the Fed, the US 10-year yield hit an 11-year high yesterday, but it has pulled back today, and in turn that has encouraged the equity bulls.
This morning the euro pushed higher as the European Central Bank announced it would hold an emergency meeting at lunchtime. The extraordinary move suggested the bank were nervous, possibly about inflation, and that put a floor under the single currency. In the end, the ECB said it would use flexibility when reinvesting the pandemic emergency purchase programme – the aim is to ensure there is not a sudden spike in periphery bond yields. As a result, the euro has slipped across the board.
Gold has recovered from its one-month low thanks to the cooling of bond yields as well as the muted US dollar. The yellow metal is sensitive to the perceived plans of the Fed as the body is extremely influential on the greenback. Industrial metals like copper and silver are higher too as fears about the health of the global economy have cooled for now. It is clear the worlds’ post pandemic boom is over and now that numerous central banks are in hiking cycles, it is likely to dampen demand for minerals.