FirstFT: Relief rally gives Wall Street its best day for two years

Shares on Wall Street had their best day for two years yesterday after the chair of the Federal Reserve ruled out more aggressive interest rate rises than the market had been expecting.

Jay Powell said a 0.75 percentage point rise was “not something” the US central bank was considering after announcing the first half a percentage point interest rate rise for more than two decades.

The Fed lifted the target range of its federal funds rate to a range of 0.75 per cent to 1 per cent at the end of its two-day meeting and indicated it would raise the key lending rate by the same amount at its next two meetings.

The S&P 500 closed up 3 per cent, its largest one-day gain since May 2020, following Powell’s comments. The Nasdaq Composite, which was in negative territory shortly before the press conference started, ended up 3.2 per cent.

In the bond market, the rate sensitive two-year Treasury note dropped 0.13 percentage points after the press conference, to 2.64 per cent. The yield on the benchmark 10-year Treasury dipped 0.04 percentage points, to 2.92 per cent, having climbed higher than 3 per cent in the run-up to the meeting.

Powell said there was a “good chance” the US economy would avoid recession as the central bank raised interest rates to damp US inflation which is at the highest level for four decades.

The Fed’s preferred measure of inflation, which strips out volatile food and energy prices is running at an annual pace of 5.2 per cent, well above the central bank’s longstanding 2 per cent target.

However, US Treasury secretary Janet Yellen, who preceded Powell as Fed chair, said before yesterday’s interest rate announcement that the central bank would need to be “skilful and also lucky” to achieve a soft landing.

• Opinion: Our Unhedged newsletter parses the Fed chair’s comments and his outlook for the US economy. His use of the word “softish” to describe the preferred end point of the current rate-tightening cycle comes in for particular scrutiny.

Do you think the Federal Reserve can avoid a recession and bring inflation under control? Vote in our poll below. Thanks for reading and here’s the rest of the day’s news — Gordon.

Five more stories in the news

1. Exclusive: Archegos considered becoming biggest Deutsche Bank shareholder Archegos Capital Management considered becoming the largest shareholder in Germany’s biggest lender before the family office run by co-founder Bill Hwang imploded in 2021. According to two people familiar with the matter, Archegos received information about a controlling stake owned by Chinese conglomerate HNA that was in trouble and later collapsed.

2. Covid lockdowns hammer China’s services sector More signs of economic slowdown in China today. An index that measures activity in China’s services sector suffered its second-biggest fall on record as President Xi Jinping’s zero-Covid policy curtails economic activity.

3. US natural gas prices surge The Henry Hub natural gas benchmark hit its highest level in more than a decade yesterday as Europe and Asia prepared to pay more for imports of American supplies. Prices hit $8.415 a million British thermal units, more than double the price at the start of the year and far above the $3 average of the previous 10 years.

4. Bond bull market ‘has come to an end’ The chief investment officer of Guggenheim Partners has warned that interest rates could “trend higher for a generation” and called time on the long-running Treasury bull market. The comments mark a sharp reversal for Scott Minerd who a year ago said he expected interest rates in the US to fall and potentially even turn negative.

5. Biden calls Trumpism ‘most extreme’ political movement in recent US history The US president yesterday sharpened his criticism of Donald Trump’s hold on the Republican party in the wake of revelations that the conservative-led Supreme Court is likely to gut abortion rights and the results of the Senate primary in Ohio, where JD Vance, the candidate backed by the former president, prevailed.

The day ahead

Company earnings Private equity group Apollo is expected to report first-quarter revenue of about $903mn, according to analysts polled by Refinitiv. Apollo recently teamed up with Mukesh Ambani’s Reliance Industries on plans to bid for UK pharmacy chain Boots and also approached toymaker Mattel about a potential buyout. Other companies reporting include ConocoPhillips, Royal Caribbean, ICE and Kellog. After the market closes Con Edison, Illumina, News Corp and Zillow release results.

Economic data New applications for unemployment aid are forecast to have edged down to 182,000 in the week ending April 30. A week earlier, unemployment claims fell to 180,000 claims.

Poll of the week

Jay Powell yesterday laid out the case for increasing interest rates more aggressively to control rampant inflation in the US. But many believe the Federal Reserve’s tighter monetary policy risks causing a recession. What do you think? Have your say in our latest poll.

What else we’re reading

Alito cements his status on Supreme Court’s conservative wing Samuel Alito was this week thrust to the forefront of the six-member conservative wing of the Supreme Court justices. But he first expressed his disagreement with Wade in a 1985 memo, writes Stafania Palma in this profile of the 72-year-old.

No let-up in North Korea’s two-year Covid lockout Kim Jong Un reacted decisively to the emergence of coronavirus in early 2020, sealing borders with China and Russia, tightening restrictions on internal movement and ejecting foreign diplomats and aid workers. And while Pyongyang’s claims that it has not recorded a single Covid case have been widely ridiculed, experts say no evidence has emerged of any large-scale outbreaks.

How Rivian’s CEO became the anti-Elon The electric truck maker’s RJ Scaringe has no interest in Mars, or rockets, or building tunnels, or Twitter, either to use or to own. The tall and athletic 39-year-old has shied away from using the Elon Musk playbook in his battle with Ford and Tesla.

• Plus: Anxieties about Elon Musk’s acquisition of the social media platform are based on a lofty view of it, writes Jemima Kelly.

The man who would replace Erdoğan If there were any doubts about Kemal Kılıçdaroğlu’s determination to take on Turkey’s president, Recep Tayyip Erdoğan, they were dispelled last week. With a critical election due within the next 13 months, he warned unnamed rivals within his opposition alliance: “Either join me or get out of my way.”

Food and drink

This method for cooked eastern coffee might change your coffee life forever.