Investors adjust positions after another aggressive message from the Federal Reserve
Wall Street equities closed lower overnight as risk aversion reemerged after hawkish messages from the Fed. Powell noted it is appropriate to be moving more quickly and front-end loading, Bullard highlighted that the Fed is behind the curve, while Daly noted that the central bank will likely be raising rates by 50 bps at a couple of meetings. As such, in a dramatic reversal from an early rally, the S&P 500 shed 1.5%, the Dow Jones lost 1.0%, and the Nasdaq fell 2% to the lowest since mid-March. In individual stocks, Tesla finished 3.2% higher after posting record quarterly profits that exceeded expectations.
Following suit, Asian stock markets were down on Friday as investors digested the Fed’s tightening stance on inflation. Still, China’s Shanghai Composite managed to erase early losses to finish 0.23% higher while Hong Kong’s Hang Seng Index fell 0.32% and South Korea’s Kospi shed 0.86%. Nikkei 225 plunged 1.63% after the data showed that Japan’s April factory activity grew at a slower pace, with manufacturing PMI coming in at 53.4, down from 54.1 in the previous month.
In Europe, equities suffered solid losses at the open as market players adjusted positions after another aggressive message from the Federal Reserve. Adding to a more downbeat tone in the region, ECB’s Lagarde said yesterday that risks to growth are skewed to the downside. Meanwhile, the central bank’s vice president Luis de Guindos backed an end to bond purchases in July. The pan-European STOXX 600 lost 0.8% in early deals, looking set to end the week lower. France’s CAC 40 fell 1.0% ahead of a presidential run-off vote due on Sunday.
Risk aversion coupled with the renewed rally in US Treasury yields helped the dollar regain the upside momentum after a short-lived dip below the 100.00 mark. On Friday, the USD index advanced towards the 101.00 figure, targeting fresh long-term highs after Powell’s message. Against this backdrop, EURUSD is back around the 1.0800 figure and could threaten the 1.0760 key support that has been capping losses so far.