The day of reckoning is finally here. Today, Federal Reserve front man Jerome Powell will announce what the entire market widely expects to be very little. No change in interest rates is pretty thoroughly priced in at this point so expect anything other than that to provoke a strong reaction. Inflation came in yesterday, the November MoM rate a tiny bit higher than expected; CPI equally above expectations although nothing worth writing home about. Macroeconomic data aside, stocks remained unphased. The S&P 500 continued its recent winning streak to rise to 4,643 points by yesterday’s close. Nasdaq Composite also performed well, gaining 0.70% on Tuesday to reach 14,533. Both indices are now at their highest for the year. This is to say nothing of the Dow Jones however, which has now risen to within spitting distance of its previous all-time high set back in January 2022. The drama isn’t just contained to the US either, the German DAX index entered all-time high territory last week and the French CAC 40 briefly broke new ground on the intraday during yesterday’s session before closing lower. In stark contrast, Hong Kong’s Hang Seng index continued to make fresh lows this week, falling to 16,201 on Monday, now down almost 30% since its peak in January. Gold continued its fall from grace this week, losing 1.13% on Monday before trying and failing to make up for it on Tuesday, closing under $1980 an ounce. While we’re on commodities, oil too vigorously resumed its downtrend on Tuesday, Brent Crude falling 3.4% to close under $74 a barrel, WTI now under $69. Without a change in supply and demand dynamics, many traders see little reason for optimism.
Well that didn’t last. The rebound we saw early this week in US stocks has been thoroughly undone, due in part to poor earnings. The Nasdaq in particular fared terribly as it fell 2.43% on Wednesday, before losing a further 1.76% the following day. Quarter-on-quarter GDP growth rate figures may have compounded matters, coming in higher than expected at 4.9%. The downturn extended to the S&P 500, falling 1.43% on Wednesday then 1.18% on Thursday. Not even the Dow Jones was spared, itself seeing declines of 0.32% and 0.76%. It will be interesting to see how Asian markets react on Friday as we close the week on the back foot once again. USDJPY finally closed above the dreaded 150 level on Wednesday, after threatening to do so all month. The recent strength in the greenback proved to be too much as the pair closed at 150.2 on Wednesday then climbed again to just under 150.4 on Thursday. The Japanese Yen has had a rough year so far, down almost 15% versus the Dollar. The Bank of Japan is in a difficult position, it does not have the flexibility to fight off challenges from the USD because any attempt to do so will impact the little economic growth achieved so far via easy monetary policy. There are expectations of an intervention at some level, but for now we can only speculate on what that level may be. With the Dollar still not showing any signs of weakness, and interest rate hikes not on the table for the time being, other central banks around the world will also want to have some kind of contingency plan in place.
US stock indices finally had a good day on Tuesday, driven mainly by strong earnings reports from several major blue-chip companies. The Dow Jones Industrial Average gained 0.62% on Tuesday, enough to reverse the damage done the previous day. Similar story with the S&P 500, which gained 0.73% and the NASDAQ, which was up 0.93% on the day. Traders perhaps grateful to latch onto any good news in these uncertain times. The Hang Seng and Nikkei 225 attempted to find some semblance of a bottom yesterday, the Japanese index falling as low as 30,551 in search of buyers before reaching back up to close at 31,062. The Hang Seng finished 1.05% in the red on Tuesday but opened high on Wednesday morning at 17,465. European stocks finally broke their recent five-day downtrend but remain on the back foot overall. The Dollar reacted predictably to news of better-than-expected earnings, EURUSD falling 0.72% on Tuesday, completely erasing the previous day’s gains. There is a lot to look forward to on Thursday as both the Fed Chair and European Central Bank President are set to provide some much-needed clarity on their respective positions on inflation and possible interest rate hikes. Bitcoin annihilated the $30k resistance it had been hammering against all weekend on Monday as it blasted straight to $33k and beyond. The move extended to other cryptocurrencies, albeit in more muted fashion, with the bitcoin dominance chart hovering around 54% at the time of writing. Gold finally took a breather early this week as traders once again keep their eye on the Middle East. The lack of further developments so far left oil in a position of weakness, losing 2% on Tuesday.
Huge rally in Gold on Friday as fears of escalation in the Near East clearly outweighed downward pressures from a strong Dollar. The CPI release on Thursday was an unexpected surprise to many that saw the Dollar surge upwards in light of higher inflation figures. Unsurprisingly Gold did not initially take the news well, closing in the red as a result. That was quickly forgotten the next day however as the commodity shot up 3.4% to close just over $1932, erasing the previous two weeks’ price action. Silver had an equally impressive run, up 4% on the day to close at $22.70. Predictably, oil was an even bigger mover on Friday, rising over 5% to close above $90 a barrel. The cautious optimism present in stock markets early last week did not last. The impact of higher than expected inflation data out of the US produced a rally in the Dollar that took the wind out of the sails of most indices. Even the more resilient Asian stock markets eventually fell on Friday, with the Hang Seng ending its six-day winning streak with a dismal -2.33%, closing at 17,813. The Nikkei and Shanghai Comp were also down on Friday, falling 0.55% and 0.64% respectively. Sentiment did not improve as the European markets opened. The German DAX and French CAC 40 suffering losses of 1.55% and 1.42%, with the UK’s FTSE 100 index also closing 0.59% in the red. The US markets, which had more time on Thursday to process the CPI release, fared slightly better. NASDAQ lost 167 points to close at 13,407; the S&P 500 lost half a percent; the Dow Jones Industrial Average managing to close 0.12% in the black. If there was a spark of hope that the Fed would finally start decreasing interest rates, then such a spark has once again been snuffed out. The DXY now sits just below levels not seen since almost a year ago. Perhaps traders can hope for less turmoil in the markets this week, but once again, all eyes are on the Israeli-Palestinian conflict.
