Summary: The Fed, as anticipated, held rates steady at 5.25-5.50%, but its more bullish outlook on economic growth was evident. The dot plot revealed a hawkish tone, reducing expected rate cuts by 50bps for next year. The S&P500 and Nasdaq 100 both dipped, driven by tech giants like Alphabet, Nvidia, Microsoft, and Apple. The 10-year Treasury yield surged to 4.41%, and the dollar strengthened due to the FOMC's 2024 projections. GBP fell to near 4-month lows on soft UK CPI data, while the crude oil rally paused with a smaller-than-expected inventory drawdown.
The Saxo Quick Take is a short, distilled opinion on financial markets with references to key news and events.
US Equities: Stocks plummeted due to the "higher-for-longer" message from the FOMC. The S&P500 fell by 0.9%, and the Nasdaq 100 dropped 1.5%, mainly because of mega-cap tech stocks like Alphabet, Nvidia, Microsoft, and Apple, which saw declines of 2% to 3%. The S&P500 and Nasdaq 100 technical indicators suggest a tentative “sell”, pending confirmation of a lower closing price today.
Fixed income: The short end of the Treasury yield curve experienced a sell-off after the FOMC increased its projected Fed Fund Rate for the end of 2024 to 5%-5.25%, a 50bps rise from its previous projection. The 2-year yield surged by 9bps to 5.18%, while the 10-year yield climbed by 5bps to 4.41%. The 2-10 yield curve flattened by 4bps to -77bps.
China/HK Equities: Cautious sentiment prevailed in the markets, causing the Hang Seng Index to decline by 0.6% and the CSI300 to fall by 0.4%, as they traded within a narrow range near their yearly lows. Technology, healthcare, and consumer stocks were the poorest performers, with the Hang Seng Tech Index declining by 1.6%.
FX: Dollar got a fresh leg higher with the hawkish surprise from the FOMC on the 2024 projections. The biggest downside was seen in GBP which slid to near 4-month lows on dual shocks of softer CPI and hawkish Fed. EURUSD also moved back below 1.07 and may target support at 1.0635. Higher yields brought USDJPY back above 148 to highs of 148.36 and with Yellen opening the doors for more jawboning from Japanese officials, speculators may be turning cautious ahead of the BOJ meeting.
Commodities: Crude oil rally remained on pause with inventory drawdown for the last week coming in smaller than expected. EIA data showed US stockpiles fell 2.14mbbl last week, well short of the 5.25mbbl drop reported by the API. General risk off tone from Fed’s higher-for-longer message also underpinned. However, the reaction of Gold to Fed’s hawkish message and higher yields was more modest. Having risen to $1947 ahead of the decision, the yellow metal ended the session near-$1930 continuing to show resilience and raising questions about potential China buying.
Macro:
In the news:
Macro events:
Key company events: Darden Restaurants (DRI), FactSet Research (FDS), Manchester United (MANU)
For all macro, earnings, and dividend events check Saxo’s calendar.
For a detailed look at what to watch in markets this week – read our Saxo Spotlight.
For a global look at markets – go to Inspiration.
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
