Rate Hike Overshadows US ADP Nonfarm Employment Figures

On Wednesday afternoon (GMT+3), the US ADP Nonfarm Employment Change figures were announced, revealing that employment in the US rose by 247,000, lower than the forecasted increase of 395,000 and the previous month’s increase of 479,000.

Markets were largely unmoved by the ADP Employment figures as participants awaited the Fed’s interest rate decision. For the first time since 2000, the US Federal Reserve raised interest rates by 50 basis points. Interest rates have only ever been raised by 0.25% in the last two decades, and a 0.50% increase is the Fed’s aggressive attempt to fight rampaging inflation. Interest rates now stand between 0.75%-1%, with projections that it will rise to 3%-3.25% by year’s end.

At the same time, the Fed has announced that the reduction of its $9 trillion balance sheet would begin in June, beginning with a monthly rate of $47.5 billion for the first three months and $95 billion per month thereafter.

Post-Market

Despite the Fed’s aggressive 50-point hike, the markets mainly reacted to  Fed Chair Jerome Powell’s less-hawkish-than-expected tone, especially since participants have been factoring in the 50-point rate hike for weeks.

Powell has said that the Fed was “not actively considering” a 0.75% rate hike, prompting the dollar to plummet to a one-week low. The DXY is now at 102.49 while the 10-year Treasury yield jumped and closed at 2.93%. However, losses for the greenback should be limited as the Fed has been comparatively much more aggressive compared to its G10 peers.

Meanwhile, gold prices have also jumped at the news, with the inflation fears highlighted by Powell having a stronger effect than a 50bps rate hike. “The market expected the May FOMC meeting to have a hawkish tilt, but the gold market viewed the widely anticipated 50bps hike as dovish relative to hawkish fears,” said Suki Cooper, an analyst at Standard Chartered. Gold prices have risen to $1900 per ounce as of writing.

Finally, US equities have also moved higher in their biggest one-day gain since 2020, in line with the slightly risk-off environment. All three major US indices posted gains for the day, with the Dow Jones Industrial Average up 2.8%, the S&P 500 up 3%, and the tech-heavy Nasdaq up 3.2%.

Investors are now advised to pay close attention to the upcoming US Nonfarm Payrolls (NFP) figures, which will be released on Friday, 6 May, at 15:30 (GMT+3). The NFP increase is currently forecasted at 385,000.

As a friendly reminder, do keep an eye on market changes, control your positions, and manage your risk well.