Markets rebound prior to Fed hiking US interest rate to 28-year high in bid to cool inflation

FEDERAL Reserve Board Chairman Jerome Powell signalled that a similar move could come at the next meeting amid a global sell-off of government bonds. Photo, Reuters.

FEDERAL Reserve Board Chairman Jerome Powell signalled that a similar move could come at the next meeting amid a global sell-off of government bonds. Photo, Reuters.

Published Jun 17, 2022

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The JSE All Share Index closed firmly and higher at 67 502 points on Wednesday, buoyed by commodity-linked and retail stocks, while tech stocks, financials and banks also advanced.

Anglo American Platinum led the commodity-linked stocks with a .9 percent rise to R15 320 per share, followed by Impala Platinum at 6.1 percent to R180.20 per share.

Fashion and food retailer Woolworths was up 4.6 percent to R54.63 per share while biggest grocery chain Shoprite rose 3.9 percent to R217.44 per share, tracking upbeat retail data for April.

Markets were not much fazed as they had already priced in an aggressive interest rate hike by the Fed, but were eagerly awaiting clarity on the Fed’s future monetary policy path.

The Fed on Wednesday night raised the funds rate by 75 basis points to 1.5 percent to 1.75 percent after the inflation rate in May unexpectedly accelerated to 41-year highs of 8.6 percent.

This was the biggest rate increase since 1994, with the Fed chair Jerome Powell signalling that a similar move could come at the next meeting amid a global sell-off of government bonds.

Powell also said that a 50 or 75 basis point increase “seems most likely” at the next meeting in July, but does not expect moves of such scale to be common.

Exinity Group chief market analyst Han Tan said that Fed Funds futures had fully priced in a 75-basis point hike, with policymakers expected to frontload more of its intended rate hikes in response to unrelenting inflationary pressures.

Tan said investors were dreading the prospects of the Fed thinking it’s worth breaking the economy to quell red-hot inflation.

“Another wave of selling across global financial markets could be unleashed, depending on how forcefully the Fed abandons its gradual approach to subduing US inflation,” he said.

“However, should the Fed defy the ultra-hawkish forecasts and insist that smaller, half-point rate hikes remain the way to go, that might help soothe nerves within the riskier corners of global markets, at least temporarily.”

Meanwhile, the rand slipped slightly yesterday, after the Fed interest rates decision as the dollar remained near the two-decade high, also with the JSE closed to trading for the public holiday.

The rand weakened back towards touching the R16/$1 mark again yesterday, pressured by a stronger dollar after confirmation of prolonged aggressive interest rate hikes.

A 50 basis points hike would have seen the rand firm from current levels, while a 75 basis points hike was expected to see further weakness in the domestic currency.

The rand was also affected by concerns of second quarter domestic economic growth, after Eskom warned of a constrained power system and signalled risks of load shedding in the coming weeks.

Citadel Global director Bianca Botes said the financial markets were in the grip of global recession fears, and thus emerging markets’ currencies were taking strain.

“Fears of a global recession continue to dampen risk appetite, with the dollar hitting a 20-year high against a basket of currencies during trade yesterday,” Botes said.

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