The Fed unsurprisingly opted for the status quo on rates. Investors were primarily reassured by the maintenance of its projections of three rate cuts this year. They were worried that the U.S. central bank would now only predict 2 monetary easements following recent statistics that were higher than expected regarding inflation. The first monetary easing is now expected in June.
In Europe, the Bank of England left its benchmark rate unchanged at 5.25%, as anticipated by the markets, for the fifth consecutive time. By contrast, the Swiss National Bank was the first of the major central banks to lower its interest rates. It surprised traders and economists by lowering its benchmark rate by 25 basis points to 1.5%. "The fight against inflation over the past two and a half years has been effective. For some months now, inflation has been back below 2% and thus in the range the SNB equates with price stability," it explained.
In Asia, the Bank of Japan took the step that investors had been watching for - bringing its eight-year negative interest rate policy to a close. This turning point signifies the first interest rate increase in the country since 2007. In addition to this, the central bank renounced its yield curve control policy which it had maintained since 2016 and which pegged long-term interest rates close to zero. It also declared its cessation from acquiring risky assets like ETFs and Japanese real estate investment trusts. Yet Governor Kazuo Ueda said that monetary conditions will remain largely accommodative in the near term, citing uncertainty over the Japanese economy.
These various announcements propelled the major stock indices to new record highs.
The S&P 500 closed above the 5,200 threshold for the first time on Wednesday and ended the week at 5,234.18, up 2.29%. The Nasdaq Composite finished at 16,428.82, up 2.85% for the week, scoring a fresh record close.
In the same vein, Japan’s Nikkei soared again to all-time highs, ending up 5.63% at 40,888.43 – up 22.19% year-to-date - after briefly crossing the 41,000 threshold on Friday.
In Germany, the DAX added 1.50%, extending its record high to 18,205.94.
On the flip side, Chinese stocks tumbled on worries about more U.S. sanctions, after the Biden administration said that China's biggest chipmaker SMIC may have violated U.S. trade law in making a processor for a flagship Huawei phone. The Shanghai Composite edged down 0.22% for the week, while losses in technology and mainland stocks dragged Hong Kong’s Hang Seng index down 1.32%.
Red Flag for Real Estate
10 out of the 11 S&P sectors advanced this week, with communication services outpacing their peers with a 4.78% jump, boosted by Google-Alphabet (GOOG) and Meta Platforms (NASDAQ:META) up 6.75% and 5.26% respectively. The IT sector followed behind (+2.92% for the week) despite Apple (NASDAQ:AAPL) stock’s weakness, down 0.20% after the U.S. Department of Justice declared it will launch an antitrust lawsuit against the tech giant, charging it with creating an illicit monopoly in the smartphone industry. The industrials and consumer discretionary sectors also fared well, with gains of 2.89% and 2.79% respectively.
Real estate was the only detractor this week, with a loss of 0.44%. In a nutshell, it is the last sector to still be in the red this year, weighed down by high interest rates and subdued demand for office space in a time characterized by remote working.