Powell disappoints markets . US stocks closed lower on Wednesday after Fed’s Chair Powell hinted that the final level of interest rates will be higher than previously expected and policy will remain restrictive for some time. Nasdaq (-3.36%) and Russell (-3.36%) fell the most, followed by S&P (-2.50%) and the blue-chip Dow (-1.55%) as the Dollar index dipped below 110.50 before shooting back and closed near 112.15 mark. Bonds were sold off across the board, sending yields higher, with the shorter 2Y note shot up to 5.13% in Asian trading on Thursday, while the 10Y benchmark continued to climb past 4.15%.
In the commodity markets, Dollar strength failed to deter crude oil from rising past $88.60/bl after EIA announced a dropdown in US inventories ahead of the coming winter. Gold shot near $1,669.40/oz before being pulled lower to settle below $1,634.65/oz on Dollar strength. Elsewhere, iron ore jumped to $82.10/tn as markets see more demand after China announced Covid-exit policy in March 2023.
In the FX space, King Dollar seized the helm of demand in the short and medium term accounts while advancing back in the demand territories for the long term accounts. Sentiments turned bearish as demand for Kiwi pulled back in the medium and long term accounts, while sold off in the short term alongside Aussie and Sterling.
On Thursday, markets expect to remain volatile as more comments from various Fed’s officials are to come in the days ahead. Earnings to watch include ConocoPhillips (COP), Amgen (AMGN), Cigna (CI), Starbucks (SBUX), PayPal (PYPL), Regeneron Pharma (REGN), Moderna (MRNA), Motorola Solutions (MSI), Marriott International (MAR) and Sempra Energy (SRE) as well as the latest US jobless claims numbers, productivity, costs and factory orders.
OUR PICK – No New Pick
We stay on the sideline ahead of NFP. With the Fed’s statement yesterday that threw the markets off, we decided to stay on the sideline until after NFP Friday. Non-Farm Payroll is expected to register fewer jobs (225k vs 288k prior) and an uptick in unemployment (3.6% vs 3.5% prior); so Fed’s issuing such statement yesterday is suggesting that we might see an upbeat employment situation. To read or watch the playback of the FOMC statement, please go here.
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