Skip navigation Scroll to top
Scroll to top

LGT Navigator: Fed interest rate decision in focus – 25 or 50 basis points?

May 4, 2022

The Federal Reserve will counter the strong inflationary pressure this evening with a further increase in the key interest rate. The question is how big the anticipated rate hike will be, +25 or +50 basis points? Fed Chairman Powell's comments on the future course of monetary policy and his assessment of the inflation and economic outlook are eagerly awaited. In Brussels, meanwhile, discussions on an oil embargo against Russia are in full swing.

Fed interest rate decision in focus – 25 or 50 basis points?

US stock markets on Tuesday continued their recovery from the slump at the end of last week, but trading remained volatile. The Dow Jones Industrial closed at 33'128.79 points +0.20% higher than the previous day and the S&P 500 gained nearly half a percent to 4'175.48 points. Before tonight's expected interest rate decision by the Federal Reserve (Fed), investors are now likely to hold back. On the bond market, the yield on ten-year US government securities remained stable just below 3%. With the anticipated further and probably significant interest rate hike of 50 basis points and the foreseeable reduction of the bloated central bank balance sheet, the US central bank will finally leave the era of ultra-cheap money behind. The decision will be made tonight at 20:00 (CET), followed by the highly anticipated press conference of Fed Chairman Jerome Powell at 20:30.

On the earnings season side, Pfizer, among others, delivered solid quarterly results. The Covid-19 vaccine and the pill “Paxlovid” against a severe course of corona disease provided a profit and sales increase above market expectations.

Australia's central bank raises key interest rate

The Reserve Bank of Australia's (RBA) yesterday raised its key interest rate for the first time since the outbreak of the corona pandemic. With a rate hike of 25 basis points, the key rate is now +0.35%. Analysts had expected a rate hike, but the majority anticipated a more moderate move of 15 basis points. In view of the increasing inflationary pressure worldwide, the RBA also held out the prospect of further monetary tightening.

EU oil embargo against Russia on the way

EU countries are to stop importing Russian oil in the future, according to a proposal by the EU Commission. This is to be part of a new sanctions package against Russia, which is to be presented today in Brussels. To facilitate the renunciation for some EU countries (most likely Hungary and Slovakia) with high dependency, transition periods of six to eight months are to apply. In addition to the oil embargo, the sanctions are to include new punitive measures against companies such as Sberbank, Russia's largest bank. However, implementation of the new sanctions requires the approval of all 27 EU member states.

Producer prices in the euro area continue to rise

Price increases at producer level continued to rise in the eurozone countries in March. Producer prices rose at a record pace of +36.8% year-on-year. Energy cost more than twice as much as a year ago. In addition to the Ukraine war, the effects of the Corona lockdowns in China are also causing ongoing disruptions to global supply chains, making many goods more expensive. Developments in producer prices are having a delayed impact on consumer prices in some cases. The sharp rise in producer and consumer prices is putting the European Central Bank (ECB) nder increasing pressure to tighten its monetary policy.

Unemployment rate in the eurozone falls to record low

In the euro area, the official unemployment rate reached 6.8% in March (previous month 6.9%), the lowest level since the introduction of the euro. A year ago, the unemployment rate was 8.2%, which means that unemployment has fallen by 1.93 million over the year. The unemployment rate in the eurozone reached its highest level to date in the wake of the euro crisis, at 12%. 

  

Economic Indicators May 4

MEZ Country Indicator Last period
00:00 JP Holiday
08:00 GE Exports (March, m/m) +6.4%
08:00 GE Imports (March, m/m) +4.5%
09:45 IT PMI Composite (April) 52.1
09:50 FR PMI Composite (April) 57.5
09:55 GE PMI Composite (April) 54.5
10:00 EZ PMI Composite (April) 55.8
11:00 EZ Retail Sales (March, m/m) +0.3%
14:15 US ADP Employment private sector 455,000
14:30 US Trade Balance (March) USD -89.2bn
15:45 US PMI Composite (April) 55.1
16:00 US ISM PMI Non-Manufacturing (April) 58.3
20:00 US FOMC Monetary Policy Announcement +0.5%
20:30 US Fed Press Conference

 

Earnings Calender May 4

Country Company Period
SZ Geberit Q1
GE Volkswagen Q1
GE Fresenius Q1 
GE Hugo Boss Q1
GE Hannover Rücks Q1 
GE Siemens Healthineers Q2
FR EDF Q1
IT Enel Q1
IT Ferrari Q1
DKK Vestas Q1
US Moderna Q1
US Uber Q1
US Ebay Q1

 

LGT helps you make informed investment decisions

All about global economic and market trends at a glance

Subscribe to LGT's research newsletters

You can also follow us on Facebook or LinkedIn – or visit MAG/NET and discover interesting background articles. If you have questions, a consultant from the bank will be happy to help you.

Imprint
Publisher: LGT Bank (Switzerland) Ltd., Glärnischstrasse 36, CH-8027 Zurich
Editor: Alessandro Fezzi, E-Mail: lgt.navigator@lgt.com
Source: LGT Bank (Switzerland) Ltd.

Risk Disclosure (Disclaimer)
This publication is an advertising material / marketing communication. This publication is for your information only and is not intended as an offer, solicitation of an offer, or public advertisement to buy or sell any investment or other specific product. Its content has been prepared by our staff and is based on sources of information we consider to be reliable. However, we cannot provide any confirmation or guarantee as to its being correct, complete and up to date. The circumstances and principles to which the information contained in this publication relates may change at any time. Information that has been published should therefore not be understood as implying that no change has taken place since its publication or that it is still up to date. The information in this publication does not constitute an aid for decision-making in relation to financial, legal, tax-related or other consulting matters, nor should any investment decisions or other decisions be made on the basis of this information alone. It is recommended that advice be obtained from a qualified expert. Investors should be aware that the value of investments can fall as well as rise. Positive performance in the past is therefore no guarantee of positive performance in the future. Investments in foreign currencies are also subject to fluctuations in exchange rates. We disclaim all liability for any loss or damage of any kind, whether direct, indirect or consequential, which may be incurred through the use of this publication. This publication is not intended for persons subject to legislation that prohibits its distribution or makes its distribution contingent upon an approval. Any person coming into possession of this publication shall therefore be obliged to find out about any restrictions that may apply and to comply with them. In line with internal guidelines, persons responsible for compiling this report are free to buy hold and sell the securities referred to in this report.