Lack of FED’s extreme hawkishness helps markets
08 February 2023
Tuesday finished with a decisive victory for the indices. Traders enjoyed the words of FED Chairman Jerome Powell that happened to be less hawkish than expected. Powell acknowledged the strong job situation in the US and said this may be an issue in bringing down the inflation. He said that the disinflationary process has already begun but the road will be long and bumpy. There may be a need to further raise rates, which sounds about right and more legitimate than his claims on inflation being transitory from several months ago.
Stock traders enjoyed this message and started buying. The sentiment is positive and the push they needed was a slightly less hawkish Powell or not unexpectedly more hawkish, if you will. Nasdaq finished the day with a 2% rise, SP500 added 1.3%, while Dow Jones rose by 0.8%. In case of Dow Jones, it is especially interesting, as the price is very close to escaping the big symmetric triangle pattern. We do not have to add that this breakout is to the upside, do we?
European futures start Wednesday with gains as they, naturally, have to catch up after a mediocre session yesterday.
On the currency front, we have a continuation of the strength of the Australian Dollar, which is boosted by the ninth consecutive interest rate rise, as well as hawkish comments from the RBA. The American Dollar ended Tuesday with a correction but the EURUSD posted a fourth bearish day in a row. In this case, it is Euro’s fault, as it was was the second weakest currency among majors yesterday.
Tuesday finished with a sweet 4% bullish reversal on oil. The weaker Dollar helped, of course, but cannot be considered the only factor. An interesting rise happened in soft commodities. Coffee is getting ready for a major bullish reversal after creating a double-bottom formation and rising by 0.7% yesterday. The best performance was recorded by orange juice who added further 2.3% climb to new long-term highs. As you can see, our favourite morning beverages are getting more and more expensive.
The calendar today will see more speeches from the FED officials. We are to hear remarks from FOMC Members Williams, Barr, and Waller. Let’s see if they align with yesterday’s one by Jerome Powell.