Bonds and Shares Take a Hit after UK and Swiss Rate Hikes

On Thursday, world stocks fell and bonds also slid after a surprise hike in the interest rate by the Swiss National Bank (SNB). This fueled worries about rising inflation and an aggressive tightening of monetary policies from global central banks. The SNB has hiked its interest rate by 50 basis points for the first time in the last 15 years, which soured the market’s mood and gave a sharp boost to the safe-haven Swiss currency.

It was only hours later that the Bank of England (BoE) also delivered its own rate hike, although it was a tad softer at 25 basis points. This came a day after the European Central Bank (ECB) promised that it would provide support to the bond market that had been struggling due to the hawkish stance of the central bank.

Stock Indexes Were Down

As of 1158 GMT, there was a 0.4% decline reported in the MSCI benchmark index for global stocks. The announcement of the US Federal Reserve of a rate hike by 75 basis points had led to a positive reaction initially, but it fizzled out. As for the European STOXX 600 index, it shed 2.4% to come down to its lowest level recorded since February 2021.

There were declines recorded in Nasdaq and S&P 500 e-mini futures by 2.6% and 2.2%, respectively, which was a reversal in the rally seen in the previous session. Market analysts said that while the interest rate hikes may have come as a relief, they are still a concern. It shows that the pace of tightening by the central banks is getting aggressive and this is not a good sign for the long term.

Swiss stocks came very close to entering a bear market, while the FTSE 100 index in the UK briefly rose, as sterling fell after the rate hike by the Bank of England.

Fed Being Most Aggressive

Despite the rate hike, the BoE still came off as soft, as opposed to the US Federal Reserve. The former only hiked up the interest rate by 25 basis points, while the latter opted for a 75 basis points hike. This is the biggest hike recorded since 1994 and officials have already predicted steady increases in the rate this year. The rate of 3.4% is expected by the year-end.

The projects of the US central bank also showed that economic growth could come down to 1.7% and policymakers believe that rates would be reduced in 2024. Last Friday, data had shown that inflation in the US had increased sharper than expected in May. Moreover, a survey from the University of Michigan showed that expectations of inflations in the next five years have hit their highest since June 2008.

Jerome Powell, the chairman of the Fed, said in a news conference that the results of the survey were worth noting. With excessive expectations of inflation, it is not surprising that the Fed opted for a 75 basis points hike and is likely to do the same in the next meeting.

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