MARKET ENVELOPES

To watch:

May housing starts; Weekly unemployment claims; Wholesale trade in Canada in April

Opening call:

Stock futures fell sharply on Thursday after the Federal Reserve raised interest rates the most since 1994 and signaled to Wall Street that it would remain aggressive in its campaign to calm historically high inflation.

Chris Zaccarelli, chief investment officer for Independent Advisor Alliance, said the main takeaway for investors was that “inflation has the Fed’s attention and they take it very seriously.”

Zaccarelli said he’s not convinced the worst is behind the stock market and the economy, as they “still face considerable headwinds.” But, he added, “at least in the short term, we may be entering a more optimistic phase of this market cycle.”

“The market is grappling with the reality that there is a regime shift afoot,” said Aoifinn Devitt, chief investment officer at Moneta. “Investors are either worried about inflation or the Fed crushing the economy.”

Interest rate hikes of this magnitude could unsettle investors if they believe the Fed is running too fast to get ahead of inflation, Devitt said. “That can lead to even more anxiety in the market.”

Overseas, European indices opened sharply lower. The pancontinental Stoxx Europe 600 index fell 1.6% with heavy losses for rate-sensitive tech companies. In Asia, indices were more mixed, although the Hang Seng index fell 2.2%.

Economic overview:

Pantheon Macroeconomics said the risks of an economic recession in the United States were higher after the Fed meeting.

The Fed is likely to tighten policy too much if it sticks to its promise to raise rates until it sees a clear downward trend in month-over-month inflation rates, because the effects monetary policy work with long lags, said Ian Shepherdson, chief economist.

“Whether that means a recession will follow will depend on the resilience of the private sector, which is currently sitting on huge piles of excess cash and managing rock-bottom debt service ratios.”

Forex:

The Swiss franc hit a two-month high against the euro after the Swiss National Bank unexpectedly raised interest rates and signaled further hikes.

The SNB raised its key rate by 50 basis points to -0.25% to stem inflation, while most analysts expected rates to remain unchanged. The SNB said it cannot be ruled out that further rate hikes will be needed in the foreseeable future to stabilize inflation.

The central bank also reiterated its willingness to intervene in the foreign exchange market but omitted its usual line that the franc remains highly appreciated.

The pound fell again ahead of the policy decision by the Bank of England, which is expected to raise interest rates, but by far less than the Fed’s 75 basis point hike.

Inflation in the UK is close to double digits, but unlike the Fed, the BOE does not have the option of aggressively raising rates as the UK economy contracts, says editor Kathy Lien. CEO of 60 Second Investor. Although the BOE will signal further rate hikes beyond Thursday, a more modest move should limit sterling demand, Lien said.

Economists polled by the WSJ expect the BOE to raise its key rate by 25bp to 1.25%.

Read: The Bank of England could be forced to react to the weakness of the pound.

Obligations :

The long end of the Treasury curve could soon offer buying opportunities, said Charles-Henry Monchau, chief investment officer at Syz Bank.

Syz Bank, unsurprised by the Fed’s 75 basis point interest rate hike, believes the central bank is now firmly committed to tight monetary policy via rapid and pronounced tightening to bring down the inflation.

“The 75 basis points become the new 50 basis points,” Monchau said. While this strategy carries the risk of a severe slowdown or even a recession, the fact that “the Fed is now very quickly aligning itself with market expectations shows that it is determined to regain credibility” is positive, said Monchau.

Energy:

Oil futures rose slightly in Europe in a possible technical rebound after settling at a two-week low on Wednesday as U.S. supplies unexpectedly climbed a second week and after the Fed raised rates.

Oil market volatility appears to be on the rise again as the economic outlook darkens, Citi Research analysts said, citing the IEA’s latest “bearish” report.

Metals:

Metal prices were mixed in European trading following the Fed’s rate hike as sentiment remained subdued given macro forecasts of higher inflation and China’s tight policy hampering a recovery in the economy. industrial activity.

“It looks like they’re trying to kick the box when it comes to a recession in what the Fed calls a ‘soft landing,'” analysts at Marex said.

Other news:

Fitch said steel prices could rise as Chinese infrastructure demand picks up from the second half.

“China’s demand recovery appears to be outpacing supply recovery as Covid-19 restrictions are eased.”

Lower exports from Ukraine due to the Russian invasion as well as the reluctance of some market players to import Russian-made steel are also supporting building materials prices, Fitch said.

   
 
 
   
 
 

THE BEST TITLES OF THE DAY

 
 

Revlon cosmetics maker files for Chapter 11

Revlon Inc. has filed for bankruptcy, potentially ending a decades-long bet on the beauty products company by Ronald Perelman, its billionaire majority shareholder.

Mr. Perelman bought Revlon in 1985 and built a reputation for always coming to its rescue when its future looked bleak, often with bailout loans or cash injections. Now he risks losing control of the cosmetics business as it faces heavy debt loads, inflation and supply chain pressures and competitive threats.

   
 
 

World’s largest miner abandons immediate exit from thermal coal

ADELAIDE, Australia – The world’s biggest mining company has scrapped the sale of its last thermal coal mine and said it will aim to close the Australian pit in 2030.

Despite record coal prices, BHP Group Ltd. said he had not found a buyer for the Mt Arthur mine, which is one of Australia’s largest coal mines but is technically complex and will have a large clean-up bill when it closes .

   
 
 

Abbott halts production at Michigan baby formula plant

Abbott Laboratories said it suspended production of baby formula at its Sturgis, Michigan plant after recent storms flooded part of the facility, causing another setback to the company’s efforts to help mitigate a nationwide shortage of formula.

Abbott said Wednesday it halted production of its specialty EleCare formula, which it recently restarted, so it could assess storm damage and clean up the plant. The shutdown will delay distribution of the new product by a few weeks, the company said.

   
 
 

Elon Musk is set to reiterate his desire to own Twitter at a meeting on Thursday

Elon Musk is expected to confirm his desire to own Twitter Inc. when he speaks to employees at the social media company on Thursday, according to a person familiar with the matter.

The CEO of billionaire Tesla Inc. is expected to take pre-submitted employee questions for about an hour during a virtual meeting on Twitter Thursday morning West Coast time, the person said. In addition to reiterating his interest in owning the company and his vision of its importance in the world, Mr. Musk is likely to clarify recent comments about remote work and address aspects of his strategy for Twitter, including the role of advertising and subscriptions.

   
 
 

BitMEX co-founder sentenced to probation on US compliance charge

Benjamin Delo, co-founder of cryptocurrency derivatives exchange BitMEX, was sentenced to 30 months probation for violating US anti-money laundering law.

Mr Delo, who was sentenced in federal court in New York on Wednesday, also paid a $10 million fine as part of a settlement with prosecutors and the US Commodity Futures Trading Commission. He pleaded guilty in February to a single count of violating the Bank Secrecy Act.

   
 
 

Rising interest rates could chill industrial investment, executives say

Leaders said rising interest rates could pinch freight carriers and halt industrial real estate transactions, but tougher policy could help if it succeeds in curbing inflation that is driving up the cost of projects.

“If there’s one sector that really needs inflation to be better contained, it’s the industrial sector,” said Kevin Thorpe, chief economist at real estate services firm Cushman & Wakefield.

   
 
 

Investors predict higher defaults as interest rates and inflation take their toll

Debt investors are betting that the Federal Reserve’s latest rate hike is a prelude to a slowdown for some U.S. businesses, as rising borrowing costs are likely to dampen consumer spending and boost business spending.

The Federal Reserve on Wednesday announced a 0.75 percentage point increase in the federal funds rate, the biggest central bank rate hike since 1994. Fed projections released on Wednesday also showed that policymakers expect to raise rates further during the year.

   
 
 

Swiss National Bank unexpectedly raises interest rates as inflation rises

The Swiss National Bank unexpectedly raised its key rate on Thursday for the first time since September 2007.

The country’s central bank raised its key rate by half a percentage point, from minus 0.75% to minus 0.25%, in an effort to control inflation. Economists polled by The Wall Street Journal expected the bank to leave rates unchanged.

   
 
 

China’s new home prices slide further

China’s decline in new home prices accelerated in May, even as local governments and banks step up support for a real estate sector that has suffered from tighter regulations that have weighed on home sales and pushed some major promoters on the brink of collapse.

(MORE TO BE FOLLOWED) Dow Jones Newswires

June 16, 2022 04:54 ET (08:54 GMT)

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