Equity markets in Canada and the US down after US Federal Reserve decision Pipa News

Canada’s main stock index ended nearly a percent lower and US stock indices ended even lower after a spike in trading after the US Federal Reserve raised interest rates by three-quarters of a percentage point and announced even bigger rate hikes.

The rate hike was the third in a row of the same magnitude, pushing the short-term benchmark to a range of between 3 and 3.25 percent, its highest level since early 2008.

Officials also predict they will raise their benchmark interest rate further to about 4.4 percent by the end of the year, a full point higher than forecast in June.

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The S&P/TSX Composite ends nearly 200 points lower, US stock markets also fall

Wednesday’s rate hike was in line with expectations, allowing markets to rally shortly after the announcement before falling sharply, Fed Chair Jerome Powell warned at a news conference of the difficult road ahead.

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“If we’re going to pave the way for a new era of a very strong job market, we have to get inflation behind us,” Powell said. “I wish there was a painless way to do this. There is not any.”

At the end of the day, the S&P/TSX composite index fell 184.15 points, or 0.95 percent, to 19,184.54 points.

In New York, the Dow Jones Industrial Average fell 522.45 points, or 1.7 percent, to 30,183.78. The S&P 500 index fell 66 points, or 1.7 percent, to 3,789.93, while the Nasdaq index fell 204.86 points, or 1.8 percent, to 11,220.19.

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The reaction could have been worse if the Fed had hiked rates even further, as some expected, said Ryan Crowther, portfolio manager at Franklin Templeton Canada.

“If it had been 100 or especially more than that, there would have been more likely to have had a negative reaction because it would have simply implied that they felt the directive’s implementation was even more urgent.”

The rate decision comes as economies around the world, including China, Europe and the US, are showing signs of slowing down, which likely contributed to the slightly lower rate hike, Crowther said, despite inflation that surprised at 8.3 percent last week.

The potential for higher US interest rates and falling commodity prices is putting pressure on the loonie, which traded at 74.64 cents in the US on Tuesday versus 74.93 cents in the US.

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The Fed’s announcement also came on the same day that Russian President Vladimir Putin issued a partial mobilization of reservists, warning that he would not be bluffing about using everything at his disposal to protect Russia.

Markets didn’t seem to have reacted much to the apparent escalation of the war in Ukraine, Crowther said, but it meant continued disruption going forward.

“The effects of the war continue to play out in how it impacted certain commodities and resulted in much greater volatility in various commodities, including natural gas and fertilizers.”

The October natural gas contract rose six cents to $7.78 a mmBTU, while the November crude oil contract fell $1.00 to $82.94 a barrel.

The December gold contract rose $4.60 to $1,675.70 an ounce and the December copper contract fell four cents to $3.47 a pound.

© 2022 The Canadian Press


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