It is all about reaction to the Fed today. The FOMC strongly hinted towards a March lift off for interest rates, but also did not rule out the prospect of rate hikes at every meeting and also potential for +50 basis points of hikes. Markets have responded with USTreasury yields spiking higher. This has led to the US dollar strengthening across major forex, precious metals falling sharply and Wall Street significantly lower. These moves continue this morning, but it is interesting to see the value indices outperforming growth. On Wall Street this means the Dow outperforming NASDAQ, whilst in Europe FTSE 100 is outperforming the German DAX.
The focus will switch to the first reading of US Q4 2021 growth today with Advance GDP. This data is the highlight amidst a slew of US data later.
Sentiment turns negative on the Fed: Risk appetite has been hit hard following the Fed meeting. Indices have swung sharply lower and pro-cyclical currencies are underperforming. The hawkish Fed has also hit precious metals hard too, with gold and silver swinging sharply lower.
Fed highlights: QE to end in early March. A March rate hike is likely. Fed Chair Powell not ruling out hikes at every meeting. Balance sheet reduction to commence after rate hikes begin. [USD positive]
The US responds to Russia’s security demands: The two sides are in communication, which at least is encouraging. However, the US will not release the content of the response [Risk uncertain]
New Zealand inflation jumps: NZ CPI increases to 5.9% YoY which was above the 5.7% forecast. This is a 31 year high [NZD supportive, but the Fed is in focus still]
- US Advance GDP (at 1330GMT). Consensus is forecasting 5.4% for the first look at Q4 2021 (2.3% final Q3).
- Weekly Jobless Claims (at 1330GMT). Expected to improve slightly to 260,000 after rising sharply last week to 286,000
- US Durable Goods Orders (at 1330GMT). Core durables (ex transport) are expected to grow by +0.5% in December (+0.9% in November)
- Pending Home Sales (at 1500GMT). Expected to decline by -0.2% in December
- Japan core CPI (at 2330GMT). Core inflation is expected to drop slightly to +0.3% in January (from +0.5% in December)
MAJOR MARKETS OUTLOOK
Broad outlook: Sentiment has plunged again. USD strength is impacting across forex and commodities, although indices are off earlier session lows.
Forex: USD is the big outperformer. Higher risk/pro-cyclical forex (AUD and NZD) are sharply lower.
- EUR/USD has dropped sharply since the Fed and has continued lower this morning. Now moving to test the 1.1185 key November low. A downside break opens 1.08/1.10. Initial resistance is now 1.1220/1.1250.
- GBP/USD has fallen hard since the Fed but has picked up from support around 1.3380/1.3400 in the past hour. The outlook remains negative near term and a breach of this support would open a much deeper correction. Subsequent support 1.3350 before 1.3160/1.3200.
- AUD/USD is again seriously testing 0.7080 support. Technicals are turning increasingly corrective and suggesting that rallies are a chance to sell. Below 0.7080 opens 0.6990. Resistance of the 0.7170/0.7185 pivot band is increasingly important.
Commodities: Gold and silver have fallen sharply once more. Oil remains positive.
- Gold has fallen sharply back below the pivot band $1828/$1832 and is looking back towards $1800 once more. The pivot at $1828/$1832 once more becomes resistance. Below $1805 ends the run of higher lows and reverts the outlook to neutral.
- Silver breaching the uptrend and breaching the $23.25/$23.45 support has pulled silver back into a neutral outlook. Resistance at $23.55/$24.00 is now growing. The next support in this correction is at $22.82.
- Brent Crude oil outlook has been seemingly immune to the Fed. A breakout to multi-year highs yesterday above $90 effectively opens $100 as a next potential target area. The uptrend is still a basis of support (at $88.25 today). Initial price support $87.50/$88.20.
Indices: A huge swing back lower on the Fed with NASDAQ underperforming on Wall Street. However, there could be signs of support forming and recovery on European markets.
- S&P 500 futures are significantly lower from where they were before the Fed announcement, but there are signs of support forming in the European session. The key low at 4212 remains intact and a rebound from 4263 has formed. The key resistance is 4445, but as the dust settles following the Fed, signs of support are forming.
- DAX with a sharp fall back from 15,553 leaving this as key resistance. However signs of support in the past couple of hours and a potential recovery from 15,041 leaving a band of support 14,975/15,041. There is much to do for the bulls, but at least the selling appears to have been contained, for now.
- FTSE 100 continues to be the outperforming index. A strong intraday rebound from the sell-off last night and the market is eyeing the resistance around 7500/7540 again. There seems to be an appetite to buy around 7360/7400. Elevated volatility but signs of improvement.