Wall Street higher after Fed signals rate hikes nearing end but FTSE closes in red
The FTSE 100 and European stocks finished mixed this Thursday as the Bank of England raised interest rates to 4.25%.
The FTSE 100 (^FTSE) lost 0.69% to close at 7,515 points , while the CAC 40 (^FCHI) in Paris climbed 0.22% to 7,146 points. In Germany, the DAX (^GDAXI) rose 0.14% to 15,237.
Bank of England's interest rate hike
The Bank of England (BoE) has raised the UK interest rates by 0.25 basis points to 4.25% to combat double-digit inflation.
This is the 11th time in a row in less than 18 months that the central bank has increased rates, making borrowing costs higher despite the cost of living crisis that has hit UK households.
It lifts UK interest rates to their highest since October 2008, early in the financial crisis, when Bank Rate was 4.5%.
Read more: Bank of England raises interest rates for 11th time to 4.25%
Karen Ward, chief market strategist EMEA at JP Morgan Asset Management, said: “The Bank of England’s Monetary Policy Committee was right to raise interest rates by 25bps at its meeting today. It is possible that recent concerns in the global banking sector will serve to tighten credit conditions, but that is not guaranteed. As with the ECB last week and Fed last night, the Bank of England acted on the information it had today which is that the economy is still resilient, inflation is uncomfortably high and broadening, and wage growth is at a level that is inconsistent with a 2% inflation target.
“We are concerned that the Bank will find itself outside of the central bank herd in the second half of the year. This is because the persistence of inflation appears more worrying in the UK than elsewhere, reflecting the fact that the combination of Brexit, the pandemic and an energy crisis appears to have done more lasting damage to the supply side of the economy.
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Vivek Paul, UK chief investment strategist, BlackRock Investment Institute, added: “The Bank of England raised interest rates by 0.25%, in line with our expectations – recent upside surprises in inflation show that we’re yet to see the back of the problem. The increase follows the Federal Reserve and ECB rate rises in recent days, and shows why we’re in a new regime; central banks will not ride to the rescue with rate cuts at the first sign of growth concerns, as we’ve been used to for a generation. Financial stability (stabilising the system given banking concerns, or in the UK’s case last year, the gilt yield spike) and monetary policy actions (dealing with inflation) are distinct.
US and Asia
Wall Street opened higher Thursday after the Federal Reserve on Wednesday signaled its rate hiking campaign may be nearing an end amid concerns about stability in the global banking system.
The Dow Jones (^DJI) rose 1.16% to 32,402 points. The S&P 500 (^GSPC) jumped 1.36% to 3,990 points and the tech-heavy NASDAQ (^IXIC) gained 2% to 11,902.
The Federal Reserve raised its benchmark rate 0.25% to a 4.75%-5% target range, citing some additional policy firming may be appropriate. Additionally, the Fed said it would continue the same pace of reducing treasury and mortgage-backed security holdings.
"On net, we think the Silicon Valley Bank (SVB) episode and the fallout for the broader regional banking sector will work to slow credit, economic activity, and eventually inflation, resulting in the Fed needing to do less of the heavy lifting to tighten financial conditions," Tiffany Wilding, PIMCO North American economist, wrote in a statement following Powell's press conference.
Although the Fed did lift US interest rates by a quarter-point, it also dropped its regular warning that “ongoing increases” in Fed Funds rate would be needed.
“In other words, the Fed has toned down its statement to give it flexibility to pause the interest rate hiking cycle in May depending on incoming economic data,” saidMatthew Weller, global head of research at FOREX.com and City Index.
Powell also moved to calm banking sector fears in the wake insisting that depositor funds were "safe" in the US banking system.
The Fed chair said the measures taken in response to the failures, including a guarantee for all deposits held at the two lenders and a new Fed lending facility, "demonstrate that all depositors’ savings are safe".
In Asia, Tokyo’s Nikkei 225 (^N225) lost 0.17% to 27,419 points, while the Hang Seng (^HSI) in Hong Kong gained 2.05% to 19,993. The Shanghai Composite (000001.SS) also gained ground, rising 0.64% to 3,286 points.
Back in London, the blue chip was in the red as banks lost as much as 1.1% after two straight days of gains.
Schroders (SDR.L) led the losses, down 3.52%, with HSBC (HSBA.L) tumbling 2.35%, and Standard Chartered (STAN.L) falling by 2.70%.
Informa (INF.L) dropped 2.25% after Morgan Stanley cut its rating on the events organizer's stock to "equal-weight" from "overweight".
The pound (GBPUSD=X) touched its highest level since the start of February this morning, as the City was right to anticipate another rise in UK interest rates.
The pound reached $1.2325, up 0.5%, as the dollar slipped following last night’s Federal Reserve decision.
Meanwhile, Brent crude (BZ=F) bounced back and was trading at around $76/barrel amid optimism around China's demand.
Watch: Federal Reserve raises interest rate by .25 points
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