Big Fed rate hike fear spooks stocks
World stocks were stuck in a sea of red on Wednesday as markets braced for an even more aggressive US Federal Reserve to tame inflation, and the yen jumped as Japan gave its strongest signal yet that it could act to shore up the weak currency.
Tuesday’s US data showing underlying inflation broadening meanwhile reverberated globally. European shares fell 0.6 per cent, retreating further from almost three-week highs hit a day earlier, and London’s FTSE slid 1.47 per cent even as data showed British inflation fell unexpectedly in August.
In Asia, Japan’s Nikkei tumbled 2.78 per cent and MSCI’s broadest index of Asia-Pacific shares outside Japan fell 2.2 per cent. Stocks on Wall Street fluctuated between modest gains and losses in choppy trade. The Dow Jones Industrial Average fell 212.28 points, or 0.68 per cent, to 30829.69.
The S&P 500 lost 4.95 points, or 0.13 per cent, to 3927.74 and the Nasdaq Composite fell 19.10 points, or 0.16 per cent, to 11614.47. “The Fed has got further to go and there is an understanding that the peak rate will now be above 4 per cent,” said Seema Shah, chief strategist at Principal Global Investors.
“There had been a feeling that inflation was moderating but the data shows just how sticky inflation is and that requires the Fed to step it up a gear.” Money markets fully price in an interest rate hike of at least 75 basis points at next week’s Fed policy meeting, with around a 38 per cent probability of a full percentage point increase to the Fed funds target rate.
Hong Kong’s Hang Seng index lost 2.48 per cent to 18847.10 and the Shanghai Composite index declined 0.8 per cent to 3237.54. Tokyo’s benchmark Nikkei 225 lost 2.78 per cent to 27818.62, while Sydney’s S&P/ ASX 200 declined 2.6 per cent to 6828.60. In Seoul, the Kospi lost 1.56 per cent to 2411.42. Higher rates hurt the economy by making it more expensive to buy a house, a car or anything else usually purchased on credit.
Mortgage rates have already hit their highest level since 2008, creating pain for the housing industry. Reuters Big Fed rate hike fear spooks stocks Bangalore: Goldman Sachs downgraded top Indian information technology service providers Tata Consultancy Services and Infosys to “sell,” from “buy,” citing a potential slowdown in dollar revenue growth in the face of impending macroeconomic stress.
“We believe a slowdown in discretionary IT services spend around the growth and transformation agenda will be quite material and something not yet completely reflected in the street’s double-digit revenue growth forecast for the industry for FY24,” Goldman analysts said in a note.
The IT index plunged 3.28 per cent on the BSE on Wednesday as the Sensex fell 224 points to settle at 60346.97 points. Goldman said it remains “more sanguine” on the EBIT margin forecasts than on revenue of Indian IT companies, given multiple levers such as higher employee utilisation, controls on variable pay and annual wage hikes. Top IT players have started freezing or cutting staff bonuses, worried that tightening budgets at US and European clients who are bracing for a recession will sharply hit their own profit.
The IT firms made a windfall when pandemic struck the world couple of years back as several global corporations poured millions of dollars to rev up their digital infrastructure. However, several top tier companies missed profit estimates in the April-June quarter due to higher costs. Goldman upgraded Wipro to “buy” from “sell,” citing attractive valuations and a recent pickup in the company’s order book.