Macro Roundup (May 5)

SHANGHAI, May 5 —This is a roundup of global macroeconomic news last night and what is expected today.

The dollar fell in volatile trading against a basket of currencies on Wednesday after the Federal Reserve raised its benchmark overnight interest rate by half a percentage point, the biggest jump in 22 years.

The rate increase was widely expected. The U.S. central bank set its target federal funds rate to a range between 0.75% and 1% in a unanimous decision, with further rises in borrowing costs of perhaps similar magnitude likely to follow.

The Fed also said that its $9 trillion balance sheet would be allowed to decline by $47.5 billion per month in June, July and August and the reduction would increase to as much as $95 billion per month in September.

The dollar index was last at 102.50, while the euro rose to $1.0622. The dollar was 129.13 against the Japanese yen.

Stock futures fell slightly after the Federal Reserve raised rates by half a point and the major averages rallied to end the day.

Futures tied to the Dow Jones Industrial Average lost 46 points, or 0.1%. S&P 500 futures and Nasdaq 100 futures each fell 0.1%.

In regular trading, the Dow Jones Industrial Average rose 932 points, or 2.81%, and the S&P 500 gained 2.99% for their biggest gains since 2020. The Nasdaq Composite jumped 3.19%.

Stocks rose for a third straight day to start the month, after the Fed increased its benchmark interest rate by 50 basis points, as expected, and said it would begin reducing its balance sheet in June. However, investor sentiment, which has been bogged down since the start of the year, flipped during Powell’s news conference, when he clarified that the Fed is “not actively considering” a larger, 75-basis-point rate hike.

Oil prices jumped on Wednesday, as the European Union, the world’s largest trading bloc, spelled out plans to phase out imports of Russian oil, raising concerns about further market tightness as those nations hunt for adequate supply.

Crude benchmarks have risen steadily over the past two months following Moscow’s invasion of Ukraine. Until now, the European Union has been reluctant to fully cut off imports of Russian oil and gas, and its plans still do not suggest a full ban for all EU members.

Europe imports some 3.5 million barrels of Russian oil and oil products daily, and also depends on Moscow’s gas supplies.

Gold bounced higher on Wednesday as the dollar and U.S. Treasury yields slipped after Federal Reserve Chair Jerome Powell, following an expected interest rate hike, flagged risks to the economy from soaring inflation.

Spot gold rose 0.87% to $1,885.06 per ounce, extending slight gains made immediately after the rate hike announcement, to jump as much as 1.2%. U.S. gold futures had earlier settled down 0.8% at $1,885.4.

The dollar index fell to a session low as Powell said inflation was too high, making bullion more appealing for other currency holders. Benchmark 10-year Treasury yields also edged lower.

The pan-European Stoxx 600 provisionally closed down by 1%. Retail stocks fell 2.3% to lead losses as most sectors and major bourses slid into negative territory.

The Fed will announce its big interest rate decision on Wednesday afternoon, with markets largely expecting the central bank to hike rates by half a percentage point as it looks to rein in inflation, along with announcing a plan to cut its balance sheet from June.