- Fresh volatility erupts on markets after Fed rate hike and warns higher rates will linger
- The U.S. central bank raised rates by 0.75 percentage points for the fourth consecutive time
- NASDAQ plummeted by 3.3%, S&P 500 dropped by 2.5% with knock on falls in Asia
- The Bank of England widely expected to follow suit with a 0.75% rate hike later
- Sainsbury’s carries baskets of resilience despite 8% fall in first half profits.
Susannah Streeter, senior investment and markets analyst, Hargreaves Lansdown:
‘’A fresh bout of volatility has reared up on indices after the chair of the Federal Reserve chair told investors to hold their horses when it comes to expectations about lower rate rises.
There was an initial jump of optimism when the Fed stayed on the expected course and raised rates by 0.75%, hinting the end of super-size hikes could be in sight. But the S&P 500 galloped 2.5% lower as Jerome Powell warned that higher rates are set to hang around. The tech heavy Nasdaq took fright, plunging by 3.3% and worries have spilled over into trade in Asia, pulling stocks lower.
Although it is clear the Fed is still desperate to kick inflation into touch, and the more aggressive moves in its playbook appear to be coming to an end with a gentler strategy on the way in the months to come. However, investors have been left wondering exactly when this softer approach will take effect -and anxious that higher rates are now going to linger for longer. This will have a negative affect on the future value of earnings, which high growth tech companies in particular have relied on for valuations.
The focus now will switch to the Bank of England’s decision today on rate rises. Again, inflation is proving a tough opponent to beat so another super-size hike is widely expected. Bank of England policymakers may not be equipped with an aide memoire of a fiscal statement to work out how much corrector pen it needs to try and erase inflation, but they have a pretty clear timetable laid out about the course the economy is set to take. There will be a close eye trained on accompanying comments, especially policymakers’ expectations for just how high the price spiral will go, and the shrinking effect on output of this sharp tightening of policy.
With fresh food prices increasing by a scorching 13.3% over the year according to the British Retail Consortium, it’s a super-tough time to be a grocer and that’s reflected in an 8% fall in first half profit at Sainsbury’s. But Sainsbury’s investment into keeping prices low to hang onto is 14.7% market share is eating into the bottom line and its still adjusting to lower post-pandemic demand for general merchandise. However, the company is carrying baskets of resilience in these results, with sales growth turning a corner in the second quarter. Lockdown boosts had already faded away in the same period a year earlier, and it managed to keep attracting shoppers into stores. It’s been helped by the summer’s big dose of good weather, which drove up seasonal product sales and the easing of supply chain problems meant there were more electronic goods on the shelves to be snapped up. Better product availability and a sharp focus on the value offer bodes well for the crucial festive season, when shoppers will be seeking out festive treats which won’t break the bank. It is reassuring that guidance for the full year is still on track, of underlying pre-tax profit of between £630 million and £690 million and Sainsbury’s is clearly gearing up for a busy Christmas given its latest recruitment drive.’’
