The Tribune

By CHRIS ILLING

CCO @ ActivTrades Corp

Several important interest rate decisions, and accompanying statements by the central banks, are depressing the stock market mood.

So many rate decisions in one week are rare. The Federal Reserve, the European Central Bank (ECB), the Bank of England and the Swiss National Bank, which are among the world’s most important central banks, decided on their further monetary policy last week and undermined hopes of a quick stock market recovery.

The interest rate hikes themselves were expected in much the same way as they came. It was the outlook of monetary policymakers that acted as a damper on the mood in the stock markets, as many market observers concluded that a return to normal is probably not expected until 2024. Statements that the central banks will continue raising interest rates at a steady pace can only be interpreted to mean that there will be two more increases of 50 basis points each, and even a risk to the upside.

While investors had just dared to step out of hiding again in the past few weeks, and allowed prices to rise amid high demand, caution returned last week. The German Dax index lost almost 1,000 points within a few days, from its multi-month high on Tuesday at almost 14,700 points to 13,800 during the day on Friday.

The US Federal Reserve tried with its statements to bring overly optimistic investors back down to earth. The American stock index, the S&P 500, was up almost 10 percent from the last Federal Reserve meeting to last week’s one alone. This is forcing the US central bank to do a balancing act between acknowledging declining inflationary tendencies and signalling that monetary policy must remain tight for longer. After the rate hike announcement, the S&P lost almost 10 percent until Friday.

The crypto world, meanwhile, is in further turmoil. Sam Bankman-Fried is now in prison, and more and more details about the collapse of FTX are being pieced together. After the spectacular demise of FTX, investors and customers are increasingly concerned about the stability of the largest crypto currency trading platform, Binance. The company said on Friday that accounting firm, Mazars, is suspending work with Binance and other crypto industry clients.

Insecure customers have been withdrawing their crypto currencies from the trading platforms for a few weeks. Binance alone has faced daily outflows averaging $250m on estimated reserves of $60 billion. Last Tuesday, customers had withdrawn the value of more than $1bn.

Values of the leading crypto currencies by market cap, Bitcoin and Ether, fell 2 percent and more than 4 percent, respectively, as the Mazars news broke.

Binance played a role in FTX’s collapse. It considered an emergency purchase, but cancelled it after a short review, which sealed the fate of its rival. The crypto industry is generally coming under pressure as investors seem less inclined towards risky assets since the Federal Reserve started raising interest rates. Safe bonds, meanwhile, bring a return of more than 4 percent, and for solid corporate bonds, almost 6 percent. Bitcoin has lost nearly 60 percent of its value since March, when the Federal Reserve began tightening monetary policy.

One thing above all seems certain after this week: The uncertainty among investors will remain for a while, and with it high volatility on the stock exchanges.