Markets have been fearing interest rate hikes for some time, so it is understandable to question why equities soared after rates went up. It’s also more confusing when you consider the Federal Reserve pushed through twice the level of rate hikes you would normally expect from a central bank meeting.
Russ Mould, investment director at AJ Bell said: “The Fed raised rates by half a percentage point whereas traditionally a quarter percentage point rise is the norm. The reason why the market jumped was down to previous fears that the central bank would be even more aggressive with rate rises to curb inflation.
“There was a lot of chatter about whether the Fed would have been bold enough to deliver three quarters of a percentage point rise. Federal Reserve chair Jay Powell gave the answer the market was looking for – no, that is not ‘actively’ being considered. Investors breathed a sigh of relief and hence share prices went up.
“But what about the next interest rate decision? What Powell says this week may not necessarily stand in a month’s time if inflation keeps going up. One must never rule out central bankers changing their mind so we could still feasibly see three quarters of a percentage point rise if inflation remains a pain, which implies markets could remain choppy for the weeks and months ahead.
“For now, markets are happy to party, with strong gains seen across Europe and parts of Asia. The FTSE 100 advanced 1.4% with a broad spread of sectors in demand. Tech stocks enjoyed a moment in the sun, while commodity producers pushed ahead.
“UK stocks continue to be takeover targets for private equity, with Ideagen the latest one to attract multiple suitors. The company provides software to manage governance, risk and compliance information for industries which cannot risk making mistakes otherwise their clients could suffer large fines, reputational damage and potentially put lives at risk.
“After enjoying a slow but steady rise in its share price for many years, the sell-off in tech stocks since last November has caused the worst run for Ideagen’s share price since it joined the AIM market 10 years ago. That no doubt attracted the attention of private equity players eager to do deals, hence why Cinven made a move in April and now we’ve got two more approaches from Astorg and Hg.”
Leave a Comment