Wall Street climbs as Federal Reserve sends signals for rate hike
Newsletter: Not covered
The most important market trends and how the best minds on Wall Street are responding to them. Delivered every day of the week.
Global stocks rose on Wednesday, as fears over indebted Chinese real estate developer Evergrande eased and the US Federal Reserve provided more details on its schedule for an interest rate hike.
The blue-chip S&P 500 index closed 1% higher, retaining its early gains even after Fed Chairman Jay Powell signaled that the US central bank could start withdrawing its massive stimulus package as early as November.
The tech-rich Nasdaq Composite also rose 1%. The yield on the US government’s 10-year benchmark bond, which rises when prices fall, fell 0.02 percentage points to 1.30 percent.
New projections have shown that a majority of Fed officials expect to hike U.S. interest rates at least three times in 2023, and a growing number expect rates to hike earlier in 2022.
The Fed’s lowest rates and record-breaking stimulus have helped prop up equity markets over the past year by keeping bond yields low and pushing investors into riskier assets such as stocks, so earlier rate hikes can be seen as a risk to the stock markets.
However, recent comments from Powell and other officials had already prepared many investors for a phase-out, and investors were relieved at the lack of a more hawkish change in tone on Wednesday.
A positive update from Evergrande had already pushed the stock markets higher earlier today. Fears that the Chinese real estate developer could default on its debt obligations sparked a global sell-off on Monday, but the company said on Wednesday it had reached an agreement on an imminent repayment.
Powell told reporters he didn’t expect Evergrande’s problems to have a major direct impact on the United States, describing the situation as “very peculiar to China.” He added, however, that this could have a ripple effect on global financial conditions by weakening investor confidence.
The European Stoxx 600 index rose 1%, while the UK FTSE 100 rose 1.5% on a rally in mining and commodity stocks whose fortunes are tied to the health of the Chinese economy.
Mainland China stocks also fell less sharply than expected as markets reopened for the first time this week after a public holiday, with investors viewing the onshore bond redemption pledge as a sign Evergrande could avert a collapse. disruptive. The CSI 300 stock index fell 0.7 percent.
Evergrande, which has financial obligations of more than $ 300 billion and has been hit by government restrictions on lending to China’s vast real estate sector, said a payment owed to domestic bondholders on Thursday had “been resolved” .
The developer did not specify how it would make its onshore bond payment. But the statement reassured investors who were hoping policymakers in Beijing would try to limit potential losses to mainland Chinese lenders, suppliers and homeowners.
“It is likely that we will see a government intervention that relieves domestic creditors,” said Francesco Sandrini, senior multi-asset strategist at Amundi, Europe’s largest fund manager. “The Chinese authorities will do their best to contain any overflow. ”
Evergrande also has an interest payment on a bond held by foreign investors due Thursday.
“The Chinese authorities have a very clear motive and the means necessary to contain any threat of a systemic crisis in the country’s national financial system,” said Udith Sikand of the Gavekal research house. “What happens to international investors is another matter. ”
Sunil Krishnan, head of multi-asset funds at Aviva Investors, warned that if Beijing “tries to contain” Evergrande’s problems, investors should fear “a deterrent effect on property development activity and some impact on real estate development activity. real estate prices ”which could further slow down the deceleration of the Chinese economy.
The dollar index, which measures the greenback against six currencies, reversed early declines to rise 0.3%. The euro weakened 0.3% against the dollar, buying $ 1.1693.
Not covered – Markets, finance and strong opinion
Robert Armstrong dissects the most important market trends and explains how the best minds on Wall Street are reacting to them. Sign up here to receive the newsletter directly to your inbox every day of the week