Wall Street shakes off recession talk
It has been a choppy 24 hours in the markets as the Fed Reserve carried out a dovish hike yesterday, and today’s GDP report suggests the country is now in a recession. As expected, the Fed lifted interest rates by 0.75%, meeting forecasts but at the same time the bank cautioned that spending and production had “softened”. Although further rate hikes are on the agenda, the Fed revealed that it might look to scale back the size of the increases. The fact it even mentioned smaller rate hikes, could be a sign we are over the peak of the hiking cycle. This morning, US index futures were a little in the red as the bulls were taking a breather. According to the advance reading of the US’s second quarter GDP, the economy contracted by 0.9%, which was nowhere near the 0.3% growth that economists were expecting. It is bad enough there was a large negative reading, but the final report for the first quarter was revised to -1.6%. Two consecutive readings of negative growth is the definition of a technical recession, so that is playing on traders’ minds. There is every chance the second quarter update might be revised into positive territory but for now the US could be looking at a recession. US equities have seen a jump in volatility in the wake of the GDP report. On one hand a recession is likely to dent corporate earnings, but on the other hand, the Fed might look to put the brakes on its hiking plans, which is something that equity traders would probably welcome. The S&P 500 is up 0.5%.
It has been a wild ride for the US dollar, as the greenback took a beating because of the Fed’s signal. Earlier today, the currency had recovered most of the ground it lost from last night, but the GDP figure brought the bears back into the equation. The US dollar index is still up on the day, but it is a long way off the session highs. GBP/USD has fallen from its one-month high. Gold and silver are building on last night’s gains even though the US dollar increased.
Apple will announce their third quarter numbers tonight. In April, the tech giant cautioned that up to $8 billion might be knocked off revenue due to supply chains issues, so market participants will be wondering if there are revisions to that forecast. So far, Apple has managed to maintain healthy gross margin levels, but considering that costs are rising, that metric might feel the pinch.