Federal Reserve (Fed): rate hike of 75 basis points

In yesterday’s conference, the Federal Reserve (Fed) sanctioned yet another 75 basis point rate hike that brings rates to 4% in total. 

Expectations confirmed by the Federal Reserve (Fed) as it hopes for a phase of unchanged rates 

The aggressive monetary policy made up of rate hikes will see an end but paraphrasing a speech from the most awarded movie in the history of cinema “It is not this day.” 

This line of incipit could be a fitting description of what happened last night when the US Federal Reserve brought out the long-awaited data on rates, +75 basis points again bringing the total to 400 basis points from March to today in just eight months. 

The fourth consecutive rise since the beginning of the year marks a record in American history. 

September had given good data on US inflation, which fell to 8.2% following the trend of recent surveys. 

Although the expectation was for 8.1%, the news had nevertheless been taken positively by the market precisely because of that trend mentioned above (6.6% the core figure minus energy and food). 

The Fed states:

“The Committee anticipates that ongoing increases in the target range will be appropriate in order to attain a stance of monetary policy that is sufficiently restrictive to return inflation to 2 percent over time. In determining the pace of future increases in the target range, the Committee will take into account the cumulative tightening of monetary policy, the lags with which monetary policy affects economic activity and inflation, and economic and financial developments.”

Karine Jean-Pierre, White House spokeswoman had reassured markets before the release of the rate figure by stating:

“The Fed is an independent agency and the president believes it has the best monetary policies to deal with inflation.”

However, the position of the Federal Reserve (Fed) is more reassuring than that explained by its chairman, warning the markets.

Jerome Powell immediately dampens enthusiasm by jumping straight in on the subject with one clarification, interest rates will have to rise a little more to bring inflation back to optimal levels, but there will be a stall phase in which there will be no change except for a gradual return to normal:

“It is very premature to think now about when to stop the interest rate hikes. The speed of the hikes is less important now. More important than the pace of the hikes is the level at which rates must rise.”

Jobs data not enough to save Wall Street

The US stock market blames Powell’s words with a bad close that sees all major market indexes losing. 

Powell considers premature a slowdown on the rate hike and the market does not take it well, the Standard & Poor 500 loses 2.5% to 3,759.69 points while the Nasdaq drops 3.36% to 10,524.80 points, the Dow Jones does not fare any better, losing 1.55% to 32,147.76 points. 

According to the monthly report compiled by Automatic Data Processing (Adp), jobs are enjoying good health, 239,000 more jobs were created in the last month against forecasts that placed jobs up by less than 200,000.

Along with jobs, so too are wages growing with a 7.7% year-on-year jump, down slightly (0.1 % from the previous month). 

A look at Europe

Alongside the European Central Bank also raising rates by 75 basis points Lagarde commented that:

“It is true that the likelihood of a recession has increased and uncertainty remains high.”

Suggesting that the time for calm is still far from coming. 

In October, the PMI index for four months in a row performed below expectations especially in the manufacturing sector. 

The major contraction in the PMI sector takes us back to the May lows of two years ago at 46.4 from 48.4 in September.

In Italy, the figure stops at 46.5 points from 48.3, while in Germany the index falls to 45.1.

Down goes Ferrari (RACE) which despite an excellent quarterly is not rewarded by the market as analysts expected much more.

Specifically, the prancing horse achieved a net profit of +10% in Q3 to 228 million euros and revenues of 1.25 billion which rose 18.7%, guidance was also up but all this was not enough. 

Italian Banca Mps, despite being out of the main basket recovers and moves below 2 euros per share. 

Amsterdam marks an uptick on gas: the price rises to 126 euros per MWh and Italian gas storages exceed the 95% mark, well above the 90% target set by the government. 

The Spread (yield differential between the benchmark 10-year BTP (ISIN IT0005494239) and the comparable German bond) also touches 216 basis points, up 4 cents. 

Also rising is the 10-year BTP, which marked 4.30%, up from 4.26% in the last survey. 

The rest of the world slows down 

In Australia and Canada, monetary policy is loosening its grip by raising rates by 25 basis points as planned, preferring to go easy on the cost of money because of the effects it may have on the real economy.