2022/04/21 (030) Column

Stock markets turned sharply and deep into negative area
– concerns about a significant rise in interest rates.
Gold Weakens as US Bond Yields Rebound,
while USD Index regains Ground!


Stock markets turned into negative – concerns about a significant rise in interest rates

Investors’ fears of sharply rising interest rates upset the initially good mood on the New York stock market on Thursday. The leading index Dow Jones Industrial recently fell by 0.15 percent to 35,107 points. The market-wide S&P 500 fell by 0.55 percent to 4435 points. The tech-heavy Nasdaq 100 lost 0.84 percent to 13,881 points.

Market participants referred to statements by US Federal Reserve Chairman Jerome Powell, who spoke about a major rate hike at the next Fed meeting in early May. A 0.50 percentage point hike in interest rates is on the table, Powell said.

There has recently been repeated speculation on the market about a major interest rate move. The central bank would thus tighten its monetary policy even more quickly. The background is the high inflation. But investors worry that tightening too quickly could jeopardize economic growth. According to the Fed’s economic report published the day before, the US economy had recently grown moderately.

Quarterly figures from large US corporations were positively received on Thursday. The electric car manufacturer Tesla, for example, delighted investors with further sales and profit records. The shares initially gained double-digit percentages, most recently the increase was almost six percent.

United Airlines was also able to impress on the market, as the price increase of 11.5 percent showed. Despite deep red figures at the start of the year, United expects business to recover strongly towards the summer. The demand is booming so much that in the current quarter not only a return to the profit zone, but even record sales are to be expected. American Airlines stocks rose 5.5 percent and also gained investor confidence with their outlook.

At AT&T, investors were happy about a price increase of almost four percent after the telecom group had won significantly more new customers in the first quarter than analysts had expected.

The chemical group Dow Inc reported a surge in sales and profits for the past quarter despite higher energy prices. The shares reached a record high and were last listed at the top of the leading index Dow Jones 3.7 percent higher.

Twitter gained 1.2 percent to $47.30. Tech billionaire Elon Musk says he has $46.5 billion in funding to launch a takeover bid for the short message service. The Tesla boss announced last week that he wanted to buy Twitter and delist it. He quoted a price of $54.20 per share.
Dollar Regains Ground

The dollar index consolidated above 100.6, not far from an over two-year high of 101 touched in the prior session, as investors increasingly bet the Fed will need to raise rates faster to rein in soaring inflation. Fed Chair Jerome Powell made clear when speaking as part of an International Monetary Fund panel that the central bank remains committed to taming inflation, currently at 40-year highs, while opening the door for a 50bps interest rate hike in May. Several Fed policymakers, including regional presidents Mary Daly of San Francisco, Charles Evans of Chicago and Raphael Bostic of Atlanta, echoed such a narrative this week. The Fed’s stance contrasts with other banks worldwide, which either take a more dovish stance like the ECB or the BoJ or take an expansionary approach like the PboC.

Euro Hits 2-Week High

The euro rose as much as 0.7% to above $1.0935 on Thursday, the highest in nearly two weeks propelled by growing bets for an early ECB interest rate hike and optimism about Macron re-election. ECB Governing Council member Martins Kazaks Bundesbank President Nagel said the ECB could raise interest rates in July and Belgian central bank Governor Pierre Wunsch said policy rates could turn positive this year. Money markets are now pricing in a 20 bps rise from the ECB by July and more than 70 bps of cumulative increases by the end of 2022. On top of that, a majority of viewers found Macron the most convincing in a TV debate against far-right candidate Marine Le Pen ahead of Sunday’s runoff election with Macron ahead in polls.

Gold Weakens as US Bond Yields Rebound

Gold prices weakened to below $1,940 an ounce on Thursday, the lowest in 2 weeks as a rebound in US Treasury yields dampened bullion’s safe-haven demand stemming from the Ukraine crisis and its potential impact on the global economy. Benchmark 10-year US yields inched up after they fell from 3-year highs on Wednesday. Treasury yields have marched higher as investors prepared for the Federal Reserve to aggressively raise interest rates to bring decades-high inflation under control. The dollar also gained slightly after dropping in the previous session, making gold less attractive for other currency holders. Meanwhile, investors remained wary of geopolitical risks and inflationary pressures. In the latest developments, officials in Ukraine continue to call for more weapons support and faster delivery as Russia intensifies its bombardment of the eastern Donbas region.