Bulls emerge ahead of Fed, gold slips
Stock markets are driving higher ahead of the Federal Reserve’s interest rate announcement. In recent weeks, equities have been under major pressure due to growing speculation the Fed might look to hike interest rates three or four times this year. In regards to tonight’s meeting, traders are not expecting rates to be lifted, but the commentary from the Fed will be closely watched, as it could provide a clue as to how many rate hikes we can expect in 2022. There is a lot of chatter the Fed will use tonight’s meeting to lay the groundwork for a rate hike in March. Earlier this week, the NASDAQ 100 dropped to its lowest mark since June 2021, but it has since rebounded. It seems to be a case of “sell the rumour and buy the fact”, whereby stocks dropped in advance of the Fed meeting, but sentiment improved on the day of the actual announcement. It is a similar situation in Europe as the Russia-Ukraine standoff weighed on stock markets at the start of the week, and that pushed the DAX to a three-month low, but some of the fears surrounding the situation have faded, despite lingering political tensions.
The US dollar continues to build on the gains that it has been racking up since last Friday. Tonight’s Fed meeting has been talked about for several weeks, and that is fuelling the dollar’s rally. Out of the major central banks, the Fed is in the lead with respect to who’s going to hike rates first. Canada’s economy has enjoyed a respectable rebound, but that didn’t prompt the Bank of Canada (BoC) to lift rates, as the bank kept rates on hold a short while ago. The BoC predicts that inflation will stay elevated for longer than initially projected, as they now feel that inflation will return to 2% in the latter half of 2023, while the previous guidance was for inflation to fall to around 2% by October 2022. Inflation is a hot topic right now, and no doubt it will be mentioned by the US central bank this evening.
Gold hit a two-month high yesterday as the recent bearish sentiment in stocks triggered a bullish run in the metal. It is lower today as dealers are swapping assets that are deemed to be lower risk for equities. It is possible that dealers are booking some profits ahead of the Fed meeting.
