Recession fears hammer stocks
It is a bloodbath for stock markets as recession fears have prompted traders to cut and run. In a bid to try and push inflation down, the Federal Reserve lifted interest rates by 0.75% last night – it was the largest hike since 1994 – the drastic move speaks to the severity of the situation. As rates are lifted, that should apply some pressure to demand. At last night’s meeting, the bank cautioned the risk of a recession increased, and that is driving sentiment today. The Philly Fed manufacturing reading swung from 2.6 to -3.3 in May, the lowest mark in almost two years – this disappointing report compounds the fears that a recession is on the horizon, hence why the S&P 500 is down 2.9%. Once again, the tech-focused NASDAQ 100 is the largest faller in the US as the market if off 3.6%. Sentiment in the Europe is weak too as the FTSE 100, the DAX and the CAC are all suffering large losses. In London, there is a broad decline as house building, mining, oil, industrial and banking stocks are down on the session.
The British pound has experienced a lot of volatility as the Bank of England hiked interest rates by 0.25%, meeting forecasts. On the run up to the announcement, there was a lot of speculation the bank would raise rates by 0.5%, so initially there was some disappointment which sparked a decline in the pound. In the past few hours, we have seen a rebound in the pound. Three of the nine policymakers backed a 0.5% hike, so that has sent out a message there is a certain element of hawkish at the BoE. In keeping with the central banks theme, the Swiss National Bank lifted rates by 50 basis points. This feeds into the wider narrative that banks are determined to put the brakes on their respective CPI levels so we can expect lower global growth.
Oil is off the lows of the session, and it is basically flat on the day. Risk-on assets are broadly under pressure but at the same time, there is a relatively squeezed supply of oil, so that is helping the energy. Gold is rallying as a combination of a weaker US dollar and the brutal fall in equities is boosting the metal.