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US stocks gave up early gains on the Fed’s decision

Asia markets are expected to fall following another wild session in the US markets overnight. The S&P/ASX 200 slid 2.5%, to a fresh 8-month low on Tuesday and SPI futures are indicating a 0.4% fall at the open today. The US Federal Reserve kept its language in line with expectation. Risk-off sentiment led the broader markets higher in the early session, but stocks gave up gains later after a press conference when the Fed Chairman Jerome Powell said, “there’s quite a bit of room to raise interest rates…”.

What the Fed said

The Fed kept the benchmark rate unchanged at below 0.25% and indicated it plans to raise interest rates by a quarter-percentage as soon as March. It will reduce its bond-buying program to $US30 billion in February, $US billion in the Treasury and $US10 billion in the mortgage-backed securities. The Fed also indicated it would start unwinding its near $US9 trillion balance sheet after raising interest rates in a separate statement.

US stocks

The broader markets finished lower after the Fed confirmed its hawkish monetary policy stance in its attempt to combat 40-year high inflation. The Dow Jones Industrial Average gave up a 400-points gain and finished in the red, down 0.41%, the S&P 500 slid 0.15%, and the Nasdaq was slightly up 0.02% after it jumped 5%.

Tech shares rebounded sharply in the early session but cut gains on the news.  Microsoft closed 2.7% higher, jumping 6% in the early session. Alphabet was up 1.71%, Apple was down 0.15%, while Meta Platforms slid 1.81%.

Bank stocks were higher, benefited by expectations of rising interest rates. JP Morgan Chase rose 0.93%, both Citigroup and Wells Fargo gained near 1%.

On the earnings front, Boeing’s shares lost 4.8% despite the aircraft maker reporting the first quarterly profit since 2019. It indicated high costs for its 787 Dreamliner program. Tesla’s shares fell 3% after hours after the electric car maker reported better-than-expected earnings and revenue in the fourth quarter,  but said supply chain issues were the limiting factor.

Treasuries

The 2-year US Treasury yields rose to the pre-pandemic level at 1.154%, the highest since late February 2020. The 10-year US Treasury yield rose to 1.867%.

The 10-year Bund yield stayed at -0.071%, and the UK 10-year Gilt was down to 1.19%.

Commodities

Gold futures slumped $US37, to $US1,816 per ounce, pressed by the spike in bond yields and strong US dollar. The precious metal broke down below the key support at 1,830 and potentially approaching imminent support at the 50-day moving average, at 1,804.

The WTI futures were up 1.2%, to $US86.60. Oil prices have been hovering around an 8-year high, supported by undersupply issues and the recent concerns towards the Russia-Ukraine crisis.

Currencies

The US dollar strengthened further on the Fed’s decision. The dollar index was up 0.53%, to 96 44, the highest in 3 weeks. All the other major currencies weakened again the greenbacks. Euro dollar, Japanese Yen, and Swiss Franc all fell more than 0.5% against the US dollar. The Canadian dollar fell after the BOC kept its interest rate unchanged, in a dovish move rather than the expectation for a rate hike. Aussie and Kiwi dollar were also down.


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