North American News
All About The Fed Today: US equities close lower
- Closing changes for the main US equity markets
- S&P 500 -0.7%
- DJIA -0.8%
- Nasdaq Comp -0.5%
- Russell 2000 +0.5%
Federal Reserve hikes rates by 25 basis points, as expected
- Federal Reserve interest rate decision highlights on May 3, 2023
- The market priced in a 90% chance of a 25 bps hike
- Prior rate was 4.75-5.00%
- Previous statement said “The Committee anticipates that some additional policy firming may be appropriate”… that has been removed
- Previous statement said “recent indicators point to modest growth in spending and production”, now says “Economic activity expanded at a modest pace in the first quarter”
- Previous statement said “Job gains have picked up in recent months and are running at a robust pace” now says “Job gains have been robust in recent months, and the unemployment rate has remained low”
- Previous statement said “Inflation remains elevated” and that’s unchanged
- Vote was unanimous
US dollar strengthens in the Fed aftermath even as 2-year yields fall
- Some risk aversion creeping in
The market is signalling worries about a hard landing in the economy with the Fed keeping rates too high for too long.
A quarter-point hike today wasn’t a surprise but Powell continued to push back against market expectations for cuts later this year. The market sees cuts coming as soon as September while Fed projections show rates staying at least this high deep into 2024.
That paradigm will need to be resolved but the risk is that the Fed stays stubbornly high even as the economy begins to deteriorate and inflation slides. In essence, it would be the mirror image of the Fed’s mistake at the start of the inflation cycle, when they were too slow to hike.
Only this time, the Fed may see it as a virtous move and an effort to crush inflation expectations for the remainder of the decade. However history has shown that once the Fed cracks they cut quickly.
April US S&P Global final services PMI 53.6 vs 53.7 prelim
- The final services PMI for the US from S&P Global
- Prelim was 53.7
- Prior was 52.6
- Composite 53.4 vs 53.4 prelim
- Prior composite was 52.3
- Services rate of expansion in new orders was the sharpest for almost a year
- The increase in services selling prices quickened to the fastest since August 2022
Powell Q&A: We will be driven by incoming data, meeting by meeting
- Comments from Powell responding to questions
- It is a meaningful change to no longer say we anticipate more firming of policy
- My own assessment is that we will have continued growth
- Staff sees a mild recession, it’s independent at last meeting and was broadly similar today
- A decision on a pause was not made today, we will decide on June in June
- We won’t have to raise rates quite as high due to banking stresses
- The assessment about hiking in the future will be ongoing
- Senior loan officer survey consistent with other data, broadly consistent with a tightening of lending standards
- Real rates are around 2%, so policy is tight
- Feed ‘a few months’ of data showing that Fed moves have been correct
- We’re possibly at a sufficiently restrictive level, or may not be far off
- We think we will need to stay at this rate for awhile
- “I continue to think that it’s possible…that this time is really different” on avoiding a recession
- We have a view that inflation is going to come down ‘not so quickly’
- Non-housing services inflation hasn’t moved much
- We shouldn’t even be talking about a world where the US doesn’t pay its bills
US ISM April services index 51.9 vs 51.8 expected
- ISM services data for April 2023
- Prior was 51.2
- employment index 50.8 versus 51.3 prior
- new orders index 56.1 versus 52.2 expected
- prices paid index 59.6 versus 59.5 prior
- new export orders 60.9 versus 43.7 last month
- imports 51.3 versus 43.6 last month
- backlog of orders 49.7 versus 48.5 last month
- inventories 47.2 versus 52.8 last month
- supplier deliveries 48.6 versus 45.8 last month
- inventory sentiment 48.9 versus 57.9 last month
US ADP April employment +296K vs +148K expected
- US April employment data from ADP
- Prior was +145K (revised to +142K)
- Highest reading since June 2022
Details:
- small (less than 50 employees) +121K vs +101K prior
- medium firms (500 – 499) +122K vs +33K prior
- large (greater than 499 employees) +47K vs +10K prior
Commodities
Gold spikes to fresh bull cycle highs on Fed dovish hike
- Gold Price rallies and drops back on the Federal Reserve rate hike and statement.
- Markets now await Fed´s Jerome Powell for clarity and direction.
The Gold price jumped to a high of $2,036.15 and counting on the back of the initial reaction to the Federal Reserve rate hike of 25 basis points and accompanying announcements within its statement.
The US Dollar has dumped and is down some 0.8% at the time of writing as the central bank removes the prior language that signaled more hikes were coming. Instead, the statements say the extent to which more firming is needed hinges on the economy. Consequently, Fed futures are pricing in a pause in June and July and rate cuts in September.
EIA weekly crude oil inventories -1280K vs -1100K expected
- US weekly petroleum inventory data for the week ending April 28
- Prior was -5045K
- Gasoline +1743K vs -1157K exp
- Distillates -1191K vs -1084K exp
- Refinery utilization -0.6% vs +0.3%
API data released late yesterday:
- Crude -3939K
- Gasoline 400K
- Distillates -1000K
The SPR released 2 million barrels last week.
Russia’s Novak: Falling oil prices requires detailed study for possible response
- Crude oil is trading down around $3.30 at $68.20
Russia’s Novak is on the wires tried to slow the falling crude oil:
- Fall in oil prices requires detailed study for possible OPEC+ response
- Maybe oil price fall will be short-term
Oil has been slumping due to concerns about the economy as U.S. politicians discuss ways to avoid a debt default, and investors anticipate more rate hikes globally. Prices were also affected by U.S. Treasury Secretary Janet Yellen’s statement that the government could run out of money within a month, the ongoing contraction in the manufacturing sector, and signs of emerging cracks in the labor market.
EU News
European indices close the day mostly higher
- German DAX reached the highest level since January 2022 yesterday
The major European indices are ending the day mostly higher. The exception is Spain’s Ibex. The German DAX has rebounded from yesterday’s sharp fall after the index reached a new high going back to January 2022.
A snapshot of the closing levels shows:
- German DAX rose 88.12 points or 0.56% at 15815 .07
- Frances CAC rose 20.63 points or 0.28% at 7403.84
- UK’s FTSE 100 rose 15.35 points or 0.20% at 7788.38
- Spain’s Ibex fell -5.28 points or -0.06% at 9076.71
- Italy’s FTSE MIB rose 180 points or 0.67% at 26810
Other News
Attack on Kremlin risks escalation of Ukraine war
- Zelenskiy denies Ukraine was responsible. Medvedev calls for retribution
A pair of drones attacked Putin’s residence at the Kremlin early today and though both were shot down, they may herald a new phase in the war.
Ukraine President Zelenskiy was quick to deny responsibility for the attack, which resulted in minimal damage.
“We don’t attack Putin or Moscow, we fight on our territory. We don’t have, you know, enough weapons for this,” he said.
Meanwhile, former Russian President Dmitry Medvedev, who is current chairman of the Secuirty Council of Russia seemed to call for the assassination of Zelenskiy, saying the drone attack leaves Russia with no options except the elimination of Zelensky and his clique.
This all comes as Ukraine gets set to deploy its long-touted counter-offensive.
June 1 estimate for exhausting debt limit is best estimate but depeds on tax receipts
- The debt ceiling mess will continue all month
On one side, you have Republicans demanding changes in order to raise the debt ceiling. On the other side, you have Democrats and the White House saying that the debt ceiling is non-negotiable.
The Treasury market is at least slightly concerned about a technical default and no one trusts the jokers in Congress to do the right thing at any point. In fact, I don’t think anyone even trusts this June 1 deadline, which the Treasury’s Josh Frost also hedged on, saying the actual date for not being able to pay obligations depends on realized receipts and outlays.
Cryptocurrency News
Litecoin Forecast: Weak buyer momentum delivers LTC in the hands of bears
- Litecoin price is bearish amid waning halving-related hype and negative sentiment in the wider market.
- LTC could shed 15% to $73.40 if the bulls fail to defend the $84.17 support level.
- The bearish thesis will be invalidated upon a decisive daily candlestick close above $102.68.
Litecoin (LTC) price indicates a bearish dominance, an outcome majorly attributed to weak buying pressure from investors and a general bearish sentiment across the wider cryptocurrency market. The Litecoin ecosystem has witnessed significant developments since the year started. As of press time, there are less than 100 days to the third halving that would reduce the block rewards. This could typically boost the LTC price.
Litecoin price suffers growing negative pressure
Litecoin price is on a southbound move, but the support at $84.17 appears to be standing strong, having stood for two consecutive weeks. Breakout efforts by the bulls proved premature, requiring more momentum to sustain. As a result, the bears have taken over and the odds are in their favor based on the general outlook.
If seller momentum continues, the price could break below the critical support at $84.17. Below this level, the cliff could see LTC lose 15% to tag the $73.40 support level.
The Relative Strength Index (RSI) position at 43 below the mean line supports the bearish outlook. The southbound move of this trend-following indicator hinted at a continued downtrend. Further, the Parabolic SAR indicator was still negative after flipping bearish and moving above the price since April 19. This also favors the downside.
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