Stocks Brave Higher as Markets Anticipate Larger Rate Hikes

Barry Adams
07 Sep, 2022
New York City

Stocks on Wall Street advanced in morning trading as investors await the next round of rate hikes across the globe. 

The European Central Bank is set to lift its key lending rate by as much as 75 basis points and the U.S. Federal Reserve is expected to match the hike at its next two-day policy meeting ending on Sep 21.

Two days ago, the Reserve Bank of Australia hiked its key lending rate by 50 basis points to 2.35% as expected. 

The latest hike follows three increases of similar size in the previous three months and 25 basis points increase in May, lifting the rates to the levels last seen in January 2015. 

The Bank of Canada lifted its overnight lending rate by 75 basis points to 3.25% meeting the market expectations. 

The latest rate hike is the fifth consecutive increase in a row, lifting the lending rates to a high not seen since 2008. 

Crude oil prices declined in New York and in international markets on the falling demand worries and rising dollar. 

The oil price fell to the lowest level since Russia's invasion of Ukraine on February 24. 

Futures of West Texas Intermediate crude oil declined 3% to $84.21 a barrel and natural gas eased 20 cents to $7.92 a thermal unit. 

The yields on 2-year notes fell to 3.47%, 10-year Treasury notes eased to 3.28% and 30-year bond fell to 3.44%. 

 

Elevated U.S. Trade Deficit Eases In July 

U.S. trade deficit declined $10.2 billion to $70.7 billion in July, the Bureau of Economic Analysis reported Wednesday. 

Total exports rose 0.2% to record $259.3 billion driven by higher service exports offsetting a decline in merchandise shipments. 

Total imports fell 2.9% to $329.9 billion after a decline in imports of industrial supplies and consumer goods offset an increase in shipments of automotive vehicles and parts. 

The deficit with China fell to $33 billion, a decline of $3.9 billion after exports rose to $12.8 billion and imports eased to $45.8 billion. 

 

European Markets Trade Higher Ahead of Rate Decision 

European markets advanced and energy prices in the region fell for the third day in a row. 

Investors are bracing another round of rate hike as central banks in the U.S., Europe and Asia target inflation in a coordinated fashion. 

The National Bank of Poland lifted its key lending rate by 25 basis points to 6.75%, marching the market expectations. 

The DAX index increased 0.6% to 12,942.11, the CAC-40 index rose 0.2% to 6,115.93, and the FTSE 100 index fell 0.9% to 7,237.83. 

Brent crude oil prices fell 4% to $89.06 a barrel and TTF gas prices plunged 11.4% to 212.41 euros a megawatt a hour.  

The U.S. dollar continued to rise and the euro dropped to $0.994 and the British pound eased to $1.147, the lowest in 37 years as investors anticipate inflation to accelerate and economic conditions to weaken. 

Rising current account deficit and dropping investor confidence has hammered the pound 15% against the U.S. dollar this year.   

The British pound is set to test its record low of $1.02 reached in February 1985.