Notifications Bell

ECB Hikes Rate by 75bp; Eyes on US Federal Reserve Monetary Policy

ECB Hikes Rate by 75bp; Eyes on US Federal Reserve Monetary Policy

Nasdaq fell more than 1%, dragged down by most technology companies, particularly Meta Inc, which fell more than 20%.

Yesterday's performance of US indices was uneven.

While the DowJones30 added another day of gains, the technological Nasdaq fell more than 1%, dragged down by most technology companies, particularly Meta Inc, which fell more than 20% after publishing negative results and announcing negative forecasts for the following quarter. In the midst of these two indices, the S&P500 oscillated between gains and losses during a volatile session.

Several events triggered these movements.

On the one hand, preliminary GDP data for the third quarter were slightly better than expected, which brought the US economy out of a technical recession. However, orders for durable goods were much lower than analysts' predictions, which showed how much the US economy was slowing down and made people more likely to think that the Federal Reserve would stop raising interest rates.

US Treasury bond yields fell sharply, with the 10-year note losing around 15bps to 3.94%.

On the other hand, statements published yesterday by both Chinese government officials and Russia's President, Putin, expressed a high level of hostility toward Western countries, particularly the United States, causing some market shock and contributing to a drop in Treasury bond yields due to purchases in search of safe-haven assets.

These purchases of sovereign bonds spread to the European continent with purchases of Bunds, a German 10-year bond, whose yield fell 20 bps, below 2%, despite the ECB raising 75 bps yesterday, as expected. At the last meeting of the European Central Bank, President Lagarde made it very clear that new rate hikes would come in the following meetings.

Therefore, the market experienced a very volatile market session with several factors influencing the performance of the different assets, and not all of them in the same direction.

The decrease in market interest rates should be a positive element for risk assets, especially for stock markets. Still, if this movement is motivated by the increase in risk aversion for geopolitical reasons, the positive effect fades away.

The earnings of the remaining major technology companies, as well as inflation data, will determine the market's direction.

In this regard, the Federal Reserve's preferred inflation measure, personal consumption expenditure, is released today. This data must show signs of price level relaxation, that is, a lower figure than the previous one and lower than expected, in order for the Fed to decisively opt for a slowdown in rate hikes, which would be very welcome by the markets.

GráficoDescripción generada automáticamente

Source: Bloomberg, Reuters

This information/research prepared by Miguel Ruiz (“the research analyst”) does not take into account the specific investment objectives, financial situation or particular needs of any particular person. The research analyst primarily responsible for the content of this research report, in part or in whole, certifies that the views about the companies and their securities expressed in this report accurately reflect his/her personal views and consequently any person acting on it does so entirely at their own risk.

The research provided does not constitute the views of JME Financial Services (Pty)Ltd nor is it an invitation to invest with JME Financial Services (Pty)Ltd. The research analyst also certifies that no part of his/her compensation was, is, or will be, directly, or indirectly, related to specific recommendations or views expressed in this report.

As of the date the report is published, the research analyst and his/her spouse and/or relatives who are financially dependent on the research analyst, do not hold interests in the securities recommended in this report (“interest” includes direct or indirect ownership of securities).

The research analyst in not employed by JME Financial Services (Pty)Ltd. You are encouraged to seek advice from an independent financial adviser regarding the suitability of the investment, under a separate engagement, as you deem fit that conforms to your specific investment objectives, financial situation or particular financial needs before making a commitment to invest.

The laws of the Republic of South Africa shall govern any claim relating to or arising from the contents of the information/ research provided.

JME Financial Services (Pty) Ltd trading as ZA.CAPEX.COM acts as intermediary between the investor and Magnasale Trading Ltd, the counterparty to the contract for difference purchased by the Investor via ZA.CAPEX.COM, authorised & regulated by the Cyprus Securities and Exchange Commission with license number 264/15. Magnasale Trading Ltd is the principal to the CFD purchased by investors