The US Federal Reserve hiked short-term interest rates by 75 basis points (bps) on Wed, and shares on Wall Street finished higher. According to CNBC’s Rick Santelli, when US Treasury yields reacted to the outsized rate hike by falling and the yield curve began to steepen, the equity market took off.
The Dow Jones Industrial Average gained 303.70 pts, or 1.0%, to close at 30,668.53. The S&P 500 index rose 1.46%. The tech-heavy Nasdaq Composite advanced 2.50%. The small cap Russell 2000 gained 1.36%.
Megacap tech stocks rebounded on Wed, including Apple (AAPL US, +2.01%), Microsoft (MSFT US, +2.97%), Amazon (AMZN US, +5.24%), Alphabet (GOOGL US, +2.86%), Nvidia (NVDA US, +4.36%), and Meta Platforms (META US, +3.43%).
Wed’s 75 bps hike was generally expected. However, Fed policymakers’ indicated that future rate hikes may come faster than Wall Street mavens were previously forecasting. Fed Chair Jerome Powell said during his afternoon press conference that there could be either a 50 or 75 bps increase at the next meeting. The Fed’s benchmark rate is now slated to end 2022 at 3.4%, based on the midpoint of the target range of individual members’ expectations.
On Wed, the yield on the 10-year Treasury note slipped 18.94 basis points (bps) to 3.2839%, while the yield on the 2-year Treasuries had a larger decline, 23.59 bps to 3.1908%.
The European Central Bank (ECB) held an emergency monetary policy meeting Wed, after a surge the bond yields of some Eurozone governments. The yield on the 10-year Italian government bond passed the 4% mark earlier this week, making the difference between Italian and German bond yields it’s widest since early 2020. The ECB pledged to accelerate plans to create a “new antifragmentation instrument” to address a widening gap in borrowing costs.
The yield of the Italian government bond fell to 3.78% on Wed, well below Tue’s level of 4.18%.
European equity markets rose. The UK FTSE gained 1.20%, France's CAC 40 rose 1.35%, while the German DAX advanced 1.36%.
The euro traded up 0.7% at US$1.0443. The ICE dollar index (DXY), which measures the strength of the greenback against a basket of currencies, fell 0.34% to 105.158.
The most actively traded US gold futures (Aug) contracts settled up $6.10, or 0.3%, at US$1,819.60/oz. July silver, which is the most actively traded silver futures, rose 46.6 cents, or 2.2%, to end at US$21.420/oz.
The front-month Brent and WTI futures closed down $2.66 at US$118.51/bbl and $3.62 at US$115.31/bbl respectively.