STATE OF THE MARKETS
Stocks sank as Feds surprised markets . US stocks sank on Wednesday after the Feds raised rates as expected but surprised markets with a hawkish outlook for future hikes. Fed’s Chair Powell projected another 1.25% hike by the end of the year while cutting GDP to +0.2% for this year, +1.2% for 2023 and 1.7% in 2024. The tech-laden Nasdaq (-1.79%) fell the most, followed by S&P (-1.71%), Dow (-1.70%) and Russell (-1.42%) as short term yields 1Y and 2Y jumped above 4%. The Dollar index jumped to the highest in 20 years past the 111.50 minor handle.
In the commodity markets, Dollar strength however didn’t pull major commodities much lower though crude oil was under pressure. The black gold settled below $82.85/bl as New York closed. Gold swings wider to $1,690 – $1,650/oz but closed with a bullish doji for the day. The escalating Russia-Ukraine conflict seemed to pin the safe-haven metal under demand. Elsewhere, iron ore drifted lower to $98.60/tn while waiting on further catalyst for the next move.
In the FX space, overall sentiments remained bearish with Yen and Dollar reigned in demand for the short and medium term accounts while the overbought Swiss was sold-off by short term traders. Long term accounts seemed to position for more bullish Yen as Kiwi was sold.
On Thursday, markets expect to remain cautious as investors continue to weigh the hawkish outlook as Feds plan to raise rates to 4.75 – 5% as no ease is expected until 2024. Earnings to watch include Accenture (ACN), Costco (COST), FedEx (FDX), FactSet Research (FDS), Darden Restaurants (DRI), AAR Corp (AIR), Manchester United (MANU) and CalAmp Corp (CAMP) as well as the latest US jobless claims, current account balance and leading indicators.
OUR PICK – XAG/USD
We see medium to long term weakness. Markets had priced in 4 – 4.25% Fed funds rate but Chair Powell raised the outlook to 4.75 – 5% which would weigh on non-interest bearing assets in the medium to long term. The escalating Russia-Ukraine conflict provides a relief to safe-haven metals but may not hold in the long run, unless the war really gets ugly.
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