Senior Relationship Manager
Summary: Markets cautiously optimistic after Powell and ECB
Good Morning
Yesterday was quite a day with large swings on the ECB and Jerome Powell's speech. In the end equities ended higher and the USD gave up ground on hawkish tones from both and a largest ever rate hike by the ECB.
The European Central Bank raised its key interest rates by an unprecedented 75 basis points indicated further hikes, prioritizing the fight against inflation even as the bloc's economy is heading for a likely winter recession.
With inflation at 50 Year high, policymakers are worried that rapid price increases could become entrenched and lead to secondary effects. The decision for the for a 75-basis point hike was unanimous. The interesting part of the ECBs decision may well be that there were no measures taken to reduce liquidity. This can indicate the ECB is looking to support the economies while appearing to fight inflation.
The Federal Reserve is "strongly committed" to controlling inflation but there remains hope it can be done without the "very high social costs" involved in prior inflation fights, Jerome Powell reiterated, making another 75 bps hike more probable, it is now traded at 85%.
All three US Indexes closed 0.6% higher with banks in the lead. The Dax swung widely yesterday, from 13045 to 12690 (in the Future) to currently trade at 12900.
The USD gave up ground over night despite Powell, with not fully clear reasoning, the USD Index fell to 109, EURUSD rose to 1.0060, GBPUSD 1.1580 and USDJPY 143.10.
The BoJ intervened verbally stating rapid moves of the JPY were undesirable, pushing USDJPY from 144.12 to 142.48. The 1998 dollar/yen high at 147.66 looms in the mind of many “old FX traders.
Gold and Silver could rise to 1718 and 18.75. Bitcoin can retake the 20k to trade at 20530, the upcoming Ethereum merge raising interest in crypto again.
Chinas Consumer Price Index rose less than expected at 2.5% vs 2.8% expected.
Italy Plans To Spend At Least 6.2 Billion Euros To Help Firms And Families Cope With Surging Energy Costs
Britain will cap consumer energy bills for two years and funnel billions to prop up power companies, the day in Britain will be dominated by the death of Queen Elisabeth II yesterday, King Charles will hold a speech later today.
The economic calendar is fairly empty today, the market will focus on the EU Energy summit and try to digest the recent moves and comments. The US CPI as well as the large Q* expiry next week will be the key topics coming up.
2024: The wasted year
Markets are driven by election optimism, overshadowing growing debt and liquidity concerns. The 2024 elections loom large, but economic fundamentals and debt issues warrant cautious investment.
As US economic slowdown hints at a shift away from exceptionalism, USD faces downside with looming Fed cuts. AUD and NZD set to outperform as their rate cuts lag. JPY gains on carry unwind bets and BOJ pivot.
Amid AI and obesity drug excitement, equities see varied prospects: neutral on overvalued US stocks, negative on Japan due to JPY risks, positive on Europe. European defence stocks gain appeal.
With the economic slowdown, quality assets will gain favour, especially sovereign bonds up to 5 years. Central banks' potential rate cuts in Q2 suggest extending duration, despite policy and inflation concerns.
Commodities poised for rebound. The "Year of the Metal" boosts gold and silver, copper awaits rate cuts. Grains may recover, natural gas stabilises. Gold targets $2,300-$2,500/oz, copper's breakout could signal growth.
Markets are driven by election optimism, overshadowing growing debt and liquidity concerns. The 2024 elections loom large, but economic fundamentals and debt issues warrant cautious investment.
As US economic slowdown hints at a shift away from exceptionalism, USD faces downside with looming Fed cuts. AUD and NZD set to outperform as their rate cuts lag. JPY gains on carry unwind bets and BOJ pivot.
Amid AI and obesity drug excitement, equities see varied prospects: neutral on overvalued US stocks, negative on Japan due to JPY risks, positive on Europe. European defence stocks gain appeal.
With the economic slowdown, quality assets will gain favour, especially sovereign bonds up to 5 years. Central banks' potential rate cuts in Q2 suggest extending duration, despite policy and inflation concerns.
Commodities poised for rebound. The "Year of the Metal" boosts gold and silver, copper awaits rate cuts. Grains may recover, natural gas stabilises. Gold targets $2,300-$2,500/oz, copper's breakout could signal growth.