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Fed’s 75 bps hike sinks stocks as bond yields warn of an economic recession

fed

Wall Street tumbled after a seesaw session following the Fed's 75 bps rate hike for the third straight time. Fed officials indicated more rate hikes to come to combat inflation, which could bring the fund’s rate to 4.5% by the end of 2022. The US 2-year bond yield spiked to above 4% for the first time since August 2007, while the yield on the 10-year note dropped from the recent high, pointing to a gloomy economic outlook. The deepened yield inversion indicates that Fed’s aggressive rate hikes are leading the US economy into an inevitable recession. 

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  • Dow fell 1.7%, S&P 500 was down 1.71%, and Nasdaq declined 1.79%. The S&P 500 closed below 3,800, a key support level, for the first time since mid-June when the US stocks had their two-month rally till mid-August. All 11 sectors in the S&P 500 finished in red, with growth stocks leading losses. And all the mega-cap tech giants fell between 1- 3%.
  • Meta Platforms plan to cut costs by 10%, including job reductions, which may commence in the coming months. The move suggests that the social platform has to cut expenses on its newly developed metaverse project due to the economic headwinds. The company’s shares dropped 2.7% to the lowest seen in March 2020.
  • Gold climbed on risk-off sentiment as the Russia-Ukraine war escalated. President Vladimir Putin ordered Russia’s first wartime mobilisation since World War Two. The intensified geopolitical tension also weighed on the stock market’s sentiment, pushing up gold at the same time, with the COMEX gold futures up 0.66%, to $1,682.2 per ounce.
  • The US dollar strengthened further against the other major currencies, sending EUR/USD down 1.2%, to 0.9844 this morning, a fresh 20-year low. All the commodity currencies, including AUD, NZD and CAD, sank against the US dollar to their two-year low levels.
  • Major indices across the Asia-Pacific region are set to open lower following the drop on Wall Street. ASX futures were down 0.78%. Nikkei225 futures fell 0.96% and Hang Seng Index futures declined 0.04%. The Chinese tech giant, Tencent’s shares fell 2.5% to the lowest level seen in November 2018 despite a total US$2.3 billion share buyback this year, along with a slump in its peers, such as Alibaba and Baidu, dragging the Hang Seng Index to fall 1.8% on Wednesday, the lowest seen in March.
  • Australian markets are closed due to the Queen’s memorial public holiday. In today’s Asian session, the three major central banks, including BOJ, SNB, and BOE rate decisions will be on close watch.
  • Crude oil pared early gains and finished lower on economic concerns and a strong US dollar as the Fed’s rate hikes overshadowed the impact of war escalation. However, the US crude inventories rose 1.1 million to 430.8 million in the last week, less than an estimated 2.0 million, 2% below a 5-year average for the time of the year, suggesting the tight supply remains an issue in the physical markets.
  • Bitcoin fell back to a two-year low level following the broad selloff in the risk assets. Ethereum dropped to the lowest seen in mid-June. 
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