Senior Relationship Manager
Summary: Yields soar, Equities sell off and USD strengthens after Powell turns more hawkish than hoped in the press conference after the rate decision in line with expectations..
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The initial reaction to the FOMC was friendly yesterday, late in the press conference where Powell appeared more Hawkish than the market had hoped, most of the gains evaporated, rates jumped and the USD gained.
The number of implied rate hikes increased from 4 to 4.3 on Powel stating the Feds course remained open and flexible. That was initially interpreted as a dovish loophole but on his statement that inflation has gotten worse in the last month and that the policy would have to be adjusted if it rises further. : THERE IS QUITE A BIT OF ROOM TO RAISE INTEREST RATES, THIS IS GOING TO BE A YEAR IN WHICH WE MOVE STEADILY AWAY FROM HIGHLY ACCOMMODATIVE POLICY
Over night Equities fall further, Futures show the current levels: S&P500 -1.4% @ 4280, Dow -1% @ 33700, Nasdaq –1.7% 13900. The Dax and Eurostoxx are down 2.6% and 3% but bear in mind that that is calculated against the Index close at 17:30.
10 year rates rise to 1.84 after hitting 1.88 yesterday, the USD Index rises to 96.67. EURUSD falls to the lower end of the range at 1.1215 and GBPUSD 1.3425. Gold and Silver come under pressure and fall to 1812 and 23.20. Bitcoin rose to above 37k yesterday but retreats to 35500.
Oil gained yesterday with the broader market but also receded somewhat late in the day.
Today I expect some seesaw movement until the meeting has been digested then the US GDP and Durable goods will come into focus
Shares of Tesla fell about 5% in the aftermarket on news that the company would not reach max capacity in 2022 due to supply-chain limitations. Results were above expectations and Elon Musk sees growth of more than 50% for 2022.
Deutsche Bank this morning exceeded expectations with a net profit of €145 million against an expected loss of €130 million
China weighs breaking up Evergrande to contain property crisis acc to Bloomberg News.
Key Economic Data:
Thursday: US Durable Goods orders and GDP
Friday: Swiss KOF, EU Business Climate, Personal Income, US PCE, University of Michigan Consumer Confidence.
Companies:
Thursday: Diageo, Danaher, Apple, Visa, LVMH, Mastercard, Comcast, McDonald's, SAP SE, Blackstone,
Friday: Charter Communications, Chevron Caterpillar
Trade safely.
Bond. Long Bond(s)
With real rates being too positive, we see three scenarios: Opportunity to lock in rates at cycle high, government overreach to keep the economy afloat or a complete reset of the economy.
Steen Jakobsen,
Chief Investment Officer
Is a bond bull market ahead? Inflation still poses a risk for investors, but the moment for increasing duration to your portfolio may be approaching towards the end of the year, when central banks might be forced to cut interest rates.
Althea Spinozzi,
Senior Fixed Income Strategist
The furious rate hike cycle has brought gains in the US dollar, but with stagflation risks in Europe and the UK and weakness in the Chinese economy, USD may have more room to run. But a strong dollar could also have repercussions for US growth, emerging markets and commodity prices.
Charu Chanana,
Market Strategist
With the cost of capital rising painfully, stagflation fears are back, illuminating the fragile state of the green transformation, while giving a tailwind to nuclear power, and threatening the growth of AI-related stocks.
Peter Garnry,
Head of Equity Strategy
With supply tightness not only in energy but all commodities, the momentum in commodity prices may continue, pressuring central banks to lower real rates. That could be a good setup for precious metals, including gold, silver and potentially platinum as well.
Ole S. Hansen,
Head of Commodity Strategy
As the pandemic showed, even the US Treasury can experience seismic shifts. With the government increasing the pace of issuing bonds to support fiscal spending, the complex Treasury market and regulatory constraints could spark a liquidity event.
Redmond Wong,
Market Strategist
The tide has turned for bonds. Given the current yields, bonds have become an attractive investment, with added benefits including lower risk than stocks, increased diversification and a steady stream of income unaffected by economic changes.
Peter Siks,
Investment Coach