North American News
US stocks end higher as markets get comfortable with higher rates
- Fed targets 3.4% by the end of the year
The major US stock indices day higher are ending the day higher as the markets get comfortable with the higher rates scenario.
The final numbers are showing:
- Dow is up 303.70 points or 1.0% at 30668.54
- S&P is up 54.53 points or 1.46% at 3790.00
- Nasdaq is up 270.82 or 2.5% at 11099.16
- Russell 2000 is up 23.31 points or 1.36% at 1731.13
Powell appeased the market by keeping the door open for a 50 BP hike in the July. Given the expectations for a end of year rate of 3.4%, it would imply 75, 50, 25 and 25 for the rest of the year.
Nevertheless, US yields moved lower across the curve:
- 2 year -22.5 bps at 3.212%
- 5 year -21.7 bps at 3.379%
- 10 year -9.5 bps at 3.31%
- 30 year -9.5 bps at 3.331%
Federal Reserve hikes rates by basis points 75, as expected
- Fed funds target to 1.50-1.75% vs the previous range was 0.75% to 1.00%
The FOMC statement from the June 14-15, 2022 meeting is out along with the updated economic forecasts. The market was pricing in an 87% chance of a 75 basis point hike with the remainder on 50 bps. Out the Fed funds futures curve, the terminal top was in May 2023 at 3.982% with a path of 75/75/50/50 priced in for the next four meetings, including today. The vote was 10-1 with the Fed’s George voting for 50 basis points. That’s a big surprise from one of the Fed hawks.
The median dot in the dot plot is at 3.4%, which is up from 1.9%. That essentially validates market pricing, which is at 3.65%.
Commodities
Gold Price Forecast: XAU/USD hovers around $1,820 on a well telegraphed 75bp Fed rate hike
Gold price has made little of a reaction to what was a well-telegraphed move from the Federal Reserve on Wednesday. The central bank has raised the benchmark interest rate by 75bps so to leave the target range standing at 1.50% – 1.75%. This was in line with expectations and as a consequence, there has been a mooted reaction in financial markets so far following plenty of positioning and volatility ahead of the event.
The lift was the biggest hike since 1994 and the statement signals that there will be more o the same to come in the foreseeable future.
- Fed swaps price 75bp rate hike for July; 140bp over July/Sept.
- US rate futures price in 93.4% chance of 75 bps hike in July; 55% probability of 50 bps rise in September after Fed decision
WTI falls to weekly lows in $116s, eyes 21DMA pre-Fed
- WTI recently fell to fresh session lows and is eyeing a test of its 21DMA pre-Fed rate announcement.
- Commentary about a weak outlook for demand growth and China lockdowns is being cited as weighing.
- But oil markets look set to remain right for the rest of the year amid OPEC+ output woes.
Front-month WTI futures recently fell to fresh weekly lows in the $116s and are currently trading with losses on the day of just over $2.0 as traders brace for what could be the largest rate hike from the Fed in 28 years later in the session. The American benchmark for sweet light crude oil is looking to test its 21-Day Moving Average, which currently sits just above $116, suggesting that, for now, though WTI is trading nearly $6.0 below earlier weekly highs, the bullish trend remains intact.
In terms of fundamental catalysts, some are citing downbeat commentary from the International Energy Agency (IEA), who on Wednesday said that higher oil prices and a worsening economic outlook are dimming the outlook for crude oil demand. Various Chinese cities have been moving to reimpose restrictions this week as the nation continues to struggle in its efforts to stamp out Covid-19. Meanwhile, the latest US Retail Sales figures have pumped recession calls.
All of this might be weighing on oil on an intra-day basis, but WTI continues to derive support from expectations for tight oil market conditions to persist for the near future. OPEC said earlier in the week that output fell in May despite the cartel aiming for to increase production, as some of its smaller members struggle to lift output. Libya is currently in a political crisis that has currently halted around 1M barrels per day in output. Meanwhile, Russian output also remains under pressure from Western sanctions over its invasion of Ukraine.
One commodity strategist said that the recent drop in OPEC+ output means that oil markets are likely to remain in a deficit of around 1.5M barrels per day for the remainder of the year. That means further draw down on already heavily drained oil reserves, supporting the case for oil prices to remain supported well within triple-digit territory.
EU News
European equity close: Optimism after the ECB
- Closing changes for the main European bourses
- Stoxx 600 +1.4%
- German DAX +1.4%
- UK FTSE 100 +1.3%
- French CAC +1.4%
- Spain IBEX +1.1%
- Italy MIB +3.0%
Other News
It’s starting to look like Yellen could take the fall for inflation
- The knives are coming out for Janet Yellen
We might be seeing the final chapter in Janet Yellen’s career in public service.
Bloomberg is out with a report today saying that she’s being increasingly sidelined and stuck in the blame game about the failure to forecast inflation and craft a message that highlights external forces.
Cryptocurrency News
Bitcoin and Ethereum stay below 200 week MA
- The price has not traded below the 200 week MAs since March 2020
The price bitcoin is trading down around -$860 or -3.87% at $21,330.
Looking at the weekly chart, the price moved down to a low yesterday of $20,079 which was near a swing high going back to November 30, 2020 (and close to the natural support at $20,000). The price bounced off that level, but still remains below its key 200 week moving average. That moving average currently cuts across at $22,358.54.