On second thought…

The markets, which had welcomed the Fed’s 75bp rate hike, finally revised their judgement significantly afterwards. Concerns about growth took over, leading to a sharp drop in equity markets (-4% for the Nasdaq, -3.25% for the S&P 500, -3% for the Euro Stoxx 50) and a sharp decline in long-term rates as well, but after very sharp variations in both directions, which show great nervousness: the US 10-year, which had fallen to around 3.3% yesterday morning, climbed back up to almost 3.5% before falling back to 3.2%. It seems that the trigger for the shift to pessimism was the surprise 50bp increase in the Swiss National Bank’s key rate, as if the contagion of 50bp hikes suddenly outweighed the fact that +75bp (from the Fed) would remain exceptional. Then the BoE raised its base rate by 25bp as expected but also hinted that a 50bp hike might follow. Three members of the BoE voted yesterday in favour of such a move. In addition, the economic data published in the US disappointed again with a sharp drop in housing starts (-14.4% mom) and building permits (-7% mom) in May. The turnaround in jobless claims was also confirmed. The rise of the euro (EUR/USD > 1.05) may come as a surprise in such a context: it comes from the ECB President’s statements on the new anti-crisis mechanism on the bond market, the presentation of which is still awaited. Interest rate spreads have also continued to narrow. The recent rise has been erased. Beware of disappointment! 

The Bank of Japan continues to stand apart from the crowd by maintaining an ultra-accommodating policy. Few indicators are expected today: the revision of the May inflation figures in the euro zone (8.1%) and, in the US, industrial production and the leading indicator (which could fall for the second consecutive month for the first time since April 2020).