US stocks fell but bounced off session lows after the Fed raised the interest rate by 50 basis points, bringing the funds rate to 4.25%-4.5%, the highest seen in December 2007. It is also the most aggressive tightening monetary step in 4 decades. The Federal Reserve raised interest rates 7 times in a row, 425 basis points in total this year to combat the skyrocketed inflation, which printed at 7% in November. The Fed repeated that it expected the rate hike cycle will stay higher for longer, with the terminal rate reaching 5.1% in 2023, which is higher than the previously projected 4.9%, according to the Fed’s dot plot. And there is no expectation for a rate cut until 2024. The Fed sticks to its hawkish tone but slightly softened from the previous meetings as Chair Powell said the speed in rate hikes is not a focus anymore, as how long the restrictive policy will stay is more what the committee will approach.
Markets seem to be quite relaxed about the Fed decision as the fear gauge VIX dropped 5% to just above 21. Notably, the 10-year bond yield fell more than the yield on the 2-year note, suggesting that bond futures markets continued to price in a slowdown in economic growth and higher interests or a recession risk.
- All three US benchmark indices retreated and finished below the recent resistance levels, with the S&P 500 closing just under 4,000. 10 out of 11 sectors in the S&P 500 finished lower, with Financials and Materials leading losses, both down more than 1%. Healthcare outperformed and is up by 0.1%. Most big-tech shares were down, with Apple falling 1.6%, and Tesla sliding 2.6% to a fresh year-low. Meta Platforms continued to outperform, up by 1.2%.
- The US dollar continued to fall against the other G-10 currencies following a further decline in the long-dated US bond yields. As the dollar index tends to trace the 10-year bond yields’ movements this year or dollar is more a reflection of the economic growth outlook.
- Gold futures retreated slightly as the short-dated bond yields rose after the Fed’s statement of higher for longer rates. The precious metal’s price is more sensitive to the 2-year bond yield. It spiked to above 1,820 amid the light CPI data on Wednesday and the key support level stayed at 1,800.
- Crude oil prices continued to rise for the third consecutive trading day as the Fed see inflation stays elevated, lifting consumer price-correlated commodity prices. China’s reopening optimism has also continued to fuel oil’s rally despite a demand outlook downgrade by OPEC.
- UK’s November CPI printed at 10.7%, easing slightly from the prior month of 11.1%, due to cooling fuel prices. But household services, such as electricity and gas, prices stayed elevated. The Bank of England is now expected to slow down its rate hike to 50 bps, bringing the interest rate to 3.5% on Friday.
- China urged banks to buy bonds amid a rapid bond redemption by retail investors, as people are trying to cash out of fixed income and shift funds to risker assets, such as equities amid reopening optimism, where the Hang Seng Index jumped about 35% from its November lows.
- Cryptocurrencies are stabilized at the recent highs but ran off day highs, with Bitcoin staying at just under 18,000 and Ethereum at just above 1,300. Binance has recovered withdrawals after a one-day halt of a stablecoin. CEO Changpeng Zhao expects a bumpy road ahead for crypto firms. The ex-FTX CEO was denied bail in Bahamas court hearing.
- Asian equity markets are set to open mixed. ASX futures were down 0.79%, Nikkei 225 futures fell 0.68% and Hang Seng Index futures rose 0.13%.
Find your flow: four principles for trading in the zone
Learn about the four trading principles of preparation, psychology, strategy, and intuition, and gain key trading insights from some of the world's top investors.
Get this free report
Disclaimer: CMC Markets is an execution-only service provider. The material (whether or not it states any opinions) is for general information purposes only, and does not take into account your personal circumstances or objectives. Nothing in this material is (or should be considered to be) financial, investment or other advice on which reliance should be placed. No opinion given in the material constitutes a recommendation by CMC Markets or the author that any particular investment, security, transaction or investment strategy is suitable for any specific person. The material has not been prepared in accordance with legal requirements designed to promote the independence of investment research. Although we are not specifically prevented from dealing before providing this material, we do not seek to take advantage of the material prior to its dissemination.
