Wall Street suffered somewhat of a delayed reaction to Thursday’s announcement by the Fed of a 50-basis-point interest rate rise, with trillions of dollars wiped off tech stocks and slumps across the the Dow (3.1% to 32,998), the S&P 500 (3.5% to 4,147), and the Nasdaq (5% to 12,318) overnight.
Tech stocks plummet
There was a sell-down of big tech stocks including Apple, Microsoft, Google and Amazon on the back of fears that higher rates will increase tech borrowing costs – the tech sector is often the most exposed to rate shocks. This is true also of cryptocurrency, and payment company Block saw a first-quarter loss of US$204 million as bitcoin fell.
Twitter bucked the trend, being one of the few tech stocks to rise.
The fall reverses weak recent gains and takes the Nasdaq to its lowest level since November 2020 and the Dow back to October 2020 – around the time the country was gearing up for a tense and divisive Trump-Biden showdown and the height of the pandemic.
The slump may reflect investor concern that the central bank did not go hard enough on the rate rise to curb inflation, following Jerome Powell’s comments that the bank would not be contemplating a 0.75% rise in the next couple of months.
“We’re still going to get a lot of Fed hikes. Just not as many as markets had priced in,” said Matt Simpson, market analyst at City Index.
The Australian share market is expected to fall this morning.
The Australian dollar was sold off overnight, buying around 71.11 US cents this morning, down 2%. The ASX SPI 200 index was down 1.5% this morning to 7,217.
UK rate rise highest in 13 years
Over in the UK, inflation has climbed to 10% for a range of geopolitical reasons we’re all familiar with by now.
The Bank of England sought to remedy this by lifting interest rates by 25 basis points to a 13-year high – though not as high as dissenting members wanted to go (50 basis points). The bank has been raising rates consistently since December.
The pound has sunk as the Bank of England warned of a recession.
Sun Cable plans under water
Meanwhile in Australia, a $30 billion plan by businessmen Andrew Forrest and Mike Cannon-Brookes to export solar energy to Singapore via a 4,200-kilometre-long under-sea cable appears to be in trouble, with experts saying it will be too costly.
The duo’s company, Sun Cable, plans to export energy from a huge 20-gigawatt solar farm it will build in the Northern Territory. The farm itself would cover 12,000 hectares and be backed by the world’s biggest battery network.
Forrest and Cannon-Brookes have been visible players in the current push by Australian business towards net zero, at a time when there is criticism of political leaders for abandoning the topic in the lead-up to the election.
In other news
Oil prices jumped overnight, with Brent crude up 1% to $US111.19 a barrel, while spot gold was down 0.2% to $US1876.84 an ounce.
China’s continued pursuit of a zero COVID-19 policy is clearly exacerbating supply chain issues around the globe. It continues to tighten Covid-19 restrictions in Beijing and extend them elsewhere.