News & Analysis
Stocks rebound after tech scare; USD strengthens – Fed in the spotlight. EURJPY collapse after strong rally; Oil breaks back above $63.50
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US markets – recovered overnight, Boeing and the energy sector leading the gains. The Dow Jones added 116.36, the S&P500 increased by 4.02 and the NASDAQ closed 20.06 higher despite Facebook falling by a further 2.56%. The Key event coming up for traders is tomorrow mornings Fed meeting. It all kicks off from 5:00 am AEDST. The market is looking for an increase in the funding rate to 1.75%. This 25 point rise should be priced in now. New Chair Jerome Powell set to give his first news conference. “The upcoming FOMC meeting is preceded by a market crash, elevated volatility, rising negative sentiment around trade, while consensus view of the Fed remains hawkish,” said Dubravko Lakos-Bujas, head of U.S. equity strategy at J.P. Morgan, said in a note Tuesday. “Given this backdrop, even a slightly dovish Fed outcome would set up a rather low bar for equities to advance.”
Treasury yields rose ahead of the Fed announcement. The benchmark 10-year note yield traded at 2.885 percent, while the short-term two-year yield rose to 2.341 percent.
“Everything I’ve seen and hears is they’re going to continue their wait-and-see approach. That’s the smartest thing they can do,” said Jeff Powell, managing partner at Polaris Greystone. “We’ve got a strong economy, but not an overheated economy.”
Oil – surged on Tuesday increasing by 152 cents to move back above $63.50. Oil traders are concerned about Saudi-Iranian tensions ahead of Saudi Crown Prince Mohammed bin Salman’s meeting with U.S. President Donald Trump. Trump has threatened to withdraw the United States from the accord between Tehran and six world powers. Worries about falling production in Venezuela, whose output has been halved since 2005 to below 2 million barrels per day, also supported oil markets. $63.95 stands as the next main high for buyers to beat. Tomorrow morning EIA inventories will be released, the market is looking for 2.5M.
European markets – moved higher, the FTSE added 18.34. The DAX added 90.31 and the CAC closed 29.59 pts higher. Technology stocks rebounded in afternoon trade. Financial services were the top performing sector on earnings, finishing Tuesday’s trade up 1.4 percent. Partners Group rose 3.5 percent after announcing higher profits for 2017 and a gross client demand between 11 billion and 14 billion euros ($13.58 and $17.28 billion) in 2018. Traders will be looking to tomorrow mornings Fed meeting.
Forex – the USD rallied overnight knocking the majors lower. The AUD lost 33, the GBP 28 pips to the USD. The EURUSD finished 96 pips lower as weak German investor confidence data also hurt sentiment. The Yen had a mixed night falling to a stronger USD but making gains to a falling Euro and AUD. The USDJPY closed 45 pips higher. The EURJPY jumped by 80 pips only to turn and finish 46 pips lower in a surprising turn in sentiment. The USDCAD had a flat night finishing slightly lower by 5 pips. Sellers and buyers failed to control the market most of the night as we saw a few high and low tests. While 1.3050 hold bulls look to have a weak upper hand. Technical’s before major news are little to no help as the picture could dramatically change after the news event. Gold lost $5.30 overnight but continues to find buyer support from 1309 -1307. With the Fed coming the market may be rather quiet today. On all major news, I personally take the day off due to the potential unpredictability of the coming market behaviour. What looks bullish/bearish, showing support or resistance can change very quickly! Traders who trade through these events please manage your risk.
Good trading from Eightcap.
Sources; CNBC. All times are AEDST
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