Stocks shake off Fed’s comments
Stock markets have witnessed a surge in volatility since last night’s Federal Reserve meeting where the central bank said it would soon be appropriate to start lifting rates. As expected, the Fed kept rates on hold, and the statement that accompanied the interest rate decision wasn’t overly hawkish, as it said the economy was improving, but it cautioned that the pandemic was still weighing on the rebound. During the press conference, Fed boss Jerome Powell, didn’t rule out the possibility of raising interest rates at every meeting this year, which could see up to seven hikes, and that spooked traders. The Fed funds futures market is pricing-in five rate hikes this year, and some investment banks are predicting six or seven hikes. Keep in mind that in December, the Fed projected three rate rises this year, so that underlines how much more hawkish sentiment is now.
As a reaction to the Fed, European stock markets and US index futures sold-off this morning, but the selling was short-lived as the fear that was running through the markets faded. Bargain hunters stepped into the fold, and now the DAX, the FTSE 100 and the CAC are on track to finish higher on the day. It is similar scene in the US, where the S&P 500 is up over 0.8%. Earlier, it was announced the US economy grew by 6.9% in the final quarter of 2021, which easily beat the 5.3% forecast that economists were expecting. The reading was a sharp rise on the 2.3% growth was that seen in the third quarter of last year. This is clearly good news for the health of the US economy, while it strengthens the case for an aggressive tightening policy from the Federal Reserve. The fact that US stocks are higher despite the solid GDP reading could be a sign that dealers are getting used to the idea there could easily be four or five rate hikes this year.
The US dollar bulls are out in force today and EUR/USD has dropped to its lowest mark since June 2020. Considering the European Central Bank are content to maintain their interest rate policy for the time being, it is now even clearer the Federal Reserve are that much more hawkish than the ECB. Gold is feeling the pain from the booming US dollar as well as the rally in stocks. The metal is just below the $1,800 mark, while earlier in the week it printed a two-month high by trading above $1,850. Oil hit a new seven year high this morning as the lingering tensions regarding Russia-Ukraine pushed up the oil market, but the energy has since cooled.
