Here is what you need to know on Thursday, June 16:
A new dawn has arrived today for most of us in financial markets. The Fed has hiked interest rates by 75 basis points for the first time since the 1990s. This is a feat most likely not too many of us will remember, certainly not me, and I am guessing most of you are younger than I. The move had been a late pivot due to the stickiness of inflation seen in last week’s report as The Wall Street Journal leaked and prepped the market that 75 basis points was on. This saw equities crash on Tuesday, but a relief rally then ensued on Wednesday as investors took some hope from the post-market Fed press conference.
In particular, investors cheered the apparent lack of conviction toward a 100 basis point hike in July. Investors also seemed to take comfort from the fact that the Fed was finally catching up to the inflation curve. We take a sarcastic raise of the eyebrow to that one. This Fed has been one of the biggest asset pumpers in history, and now all of a sudden confidence is restored now that “Jay is our man and only he can!” Please, the Fed has a shocking track record at ever engineering a soft landing. Starting from this far back, it has probably all ready lost that race. Mortgage-backed securities (MBS) went no bid last week as the housing market looks set to roll over. Right on cue, we get lower housing starts and building permits data.
We already posted in our SPY ETF preview (SPDR S&P 500 ETF (SPY) News and Forecast: Fed fights back with huge hike) that the US may already be in a recession if the Atlanta Fed’s GDPNOW is an accurate guide. GDP NOW is the Atlanta Fed’s dynamic, real-time GDP gauge, and it does have a pretty good correlation to the actual GDP number when reported. The effect of the pandemic though did see the correlation weaken.
The enthusiasm of the Fed hike has now been completely washed out on Thursday. European markets are in free fall with the Dax down nearly 3%. The ECB remains in cloud cuckoo land. Yesterday they held an emergency meeting to discuss the sovereign bond crisis. In other words they are worried the Euro is toast as regional European bond spreads balloon versus the core (Germany). The ECB held an emergency meeting and decided to form a task force to look into it. Well, that is comforting (ironic voice).
The dollar is pretty much flat after whipsawing following the Fed announcement. It trades at 104.80 now in the dollar index. The yen has started to appreciate as traders bet that the Bank of Japan will have to blink and abandon its policy of capping rates at 0.255. This could be a huge problem for global financial markets as Japan runs a massive surplus. It invests a truck load of that surplus into US financial assets, as do its citizens.
European markets are as mentioned lower: Eurostoxx -2.5%, FTSE -2.6% and Dax -2.8%.
US futures are also lower: S&P -1.8%, Dow -1.5% and Nasdaq -2.5%.
Wall Street top news (SPY) (QQQ)
Bank of England hikes rates 25 basis points.
Fed hikes rates 75 basis points.
US building permits drop 7% monthly.
Gazprom cuts gas supplies to Europe. Dutch gas benchmark prices rise 25%.
Amazon (AMZN) schedules Prime Day on July 12 and 13.
Commercial Metals (CMC) beats on earnings.
Tesla (TSLA) falls on Reuters report it has hiked prices.
Revlon (REV) files for Chapter 11.
Twitter (TWTR) up on WSJ report that Elon Musk reiterating desire to buy it.
Steel Dynamics (STLD) up on record EPS forecast.
Kroger (KR) beats on earnings but stock falls.
Meta (META), Google (GOOGL), Twitter (TWTR), Microsoft (MSFT) pledge to fight fake news.
Mcdonald’s (MCD): Argus is loving it as it names it one of its top picks.
NVIDIA (NVDA) down on insider selling $36m worth of stock.
Upgrades and downgrades
Source: WSJ.com, Briefing.com
Economic releases
The author is short TSLA and TWTR.