2022-02-11 22:05
publication
2022-02-11 22:05
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Friday’s session on the New York Stock Exchanges ended with severe drops in the main indices. Investors are concerned about the Federal Reserve’s policy and speculations about the Russian invasion of Ukraine. Gold became more expensive and the Polish zloty significantly weakened against the euro and the dollar.
It all started on Thursday after the publication of CPI inflation data, which accelerated faster than expected and with the result of 7.5% it reached its 40-year maximum. It has been known for a long time that inflation in the US (and not only there) is unacceptably high and that the Federal Reserve should have reacted to it long ago by normalizing monetary policy. But until Thursday the market didn’t panic. And on Thursday he started.
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This is the only way to interpret the bidding for the prophecy as to how hard Powell and Co. will start to raise interest rates. There are already 5-7 increases by the end of the year. There is speculation about a rate hike in March by as much as 50-75 bp. Some even talk about the possibility of raising the federal funds rate ahead of the regular FOMC meeting scheduled for March 16.
But now investors fear that the Fed has lost control of the inflationary narrative and has to do something very unusual to regain it. So definitely raise interest rates, even risking a recession before the next presidential election. Never before has the interest rate in the Federal Reserve (currently: zero) deviated from the current CPI inflation so much.
– Inflation seems to be a kryptonite for valuations. Higher inflation compresses the multipliers (i.e. a decline in c / z ratios – editor’s note) and this is what we are currently experiencing, Terry Sandven, chief equity strategist at US Bank Wealth Management, told Reuters.
On Friday, geopolitical issues were added to the fedows-inflation fears. Important US government officials suggested to the media that that the Russian attack on Ukraine may be a matter of the next several dozen hours. So far, these are just the words of the Joe Biden administration. But the mere fact that they are raining at all makes things serious.
After something like this, it is not surprising that the market reacted quite sharply. The S & P500 index fell by 1.90%, going down to the level of 4,418.61 points. The Nasdaq dipped 2.78% to end the week at 13,791.15 points. Dow Jones gave 1.43%, reaching 34,738.06 points.
Other financial markets also reacted to the news from the White House. The dollar strengthened against the euro – the EUR / USD rate ended trading at 1.1340. The vision of an armed conflict just beyond our eastern border managed to bring down the zloty. Euro exchange rate
it went up by over 6 groszy, reaching the level of PLN 4.5653. The dollar went up by almost PLN 0.09 and ended Friday’s quotes at PLN 4.0247.
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Capital flowed into the so-called safe havens. Gold rose in dollar terms by 2% to $ 1,863.05 / oz. Strong – as much as 10 bp. – US Treasury bond yields fell, reaching 2% on Thursday for the first time since February 2020. The Swiss franc also gained, which resulted in almost 10 groszes on the Polish market by a jump in the CHF / PLN exchange rate.
Krzysztof Kolany
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