Market Update – February 2 – A Continued Battle of Wills

Stocks surged, Yields dove sharply, and the US Dollar slumped on Wednesday and they are holding their gains/losses so far today as well. The FOMC delivered the 25bp rate hike as expected, reaching 4.75%, an eighth straight hike. The moderation & the lack of anything new or overly hawkish from Powell’s comments and his acknowledgement of progress in the fight against inflation opened the door for bulls and a healthy short covering rally, even though he stressed that the labor market remains “extremely tight” and that inflation remains “well above our longer-run goal.”

Markets remain convinced that the widely expected recession is likely to roil markets once again sometime this year.

The policy statement and Chair Powell’s press conference reiterated that “ongoing increases in the target range will be appropriate,” that rates need to be “restrictive for some time,” that it is too soon to declare victory, and that rate cuts are not in the outlook.

• The USD Index – was the only real casualty of the markets’ dovish take, having fallen to 100.65 as the continued downshift in rate hikes over the last few FOMC decisions is increasing the chances that the tightening cycle is nearing an end, which continues to support markets.
• EUR – finally broke the key 1.0900 extending to 1.1000.
• JPY – drift to 128.00 from 130.50. 
• GBP – at 1.2388, up 0.10% on the day.
• Stocks – US100 +2% at 12,528, US500 1% higher to 4,163 but the US30 steady at 34100. Shell makes record $40 billion annual profit. Meta surged nearly 19% in after-hours trade as it announced lower costs, big buyback, upbeat sales. Deutsche Bank’s fourth-quarter profit surged, exceeding expectations and contributing to a third consecutive year of profit. 

  

• USOil – we have seen a short-lived rise to 77.40 after it rebounded from 76.00 bottom,  after US government data showed big builds in crude and oil products inventory. OPEC+ agreed to cut its production target by 2 million barrels per day (bpd), about 2% of world demand, from November last year until the end of 2023 to support the market.
• Gold – skyrocketed to 1959.
• BTC – advanced to 24254.

Today – ECB seen raising rates by 50 basis points & BoE set to lift rates to 14-year high, might hint at next moves. Earnings: Apple, Amazon, Alphabet, Eli Lilly, Roche Holdings, Shell, Qualcomm etc.

Biggest FX Mover @ (07:30 GMT) XAGUSD (+2.59%). Bounced to R1 at 24.27. MAs flattened, MACD histogram & signal remain well above 0, RSI 63 but flat suggesting consolidation. H1 ATR 0.15, Daily ATR 0.65.

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Andria Pichidi

Market Analyst

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