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S&P 500 down, reacted more to Yellen than Powell?

    By
    ActionForex.com
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    US markets experienced a complex development overnight due to simultaneous reactions to two events. Initially, the markets responded bullishly to the Fed’s less hawkish than expected rate hike and press conference. However, just an hour before the close, sellers jumped in, and the three major indexes closed -1.6% lower.

    The selloff might be more attributed to Treasury Secretary Janet Yellen’s comments at a Senate committee. She explicitly stated, “I have not considered or discussed anything having to do with blanket insurance or guarantees of deposits.”

    Yellen further elaborated, “when a bank failure is deemed to create systemic risk, which I think of as the risk of a contagious bank run…we are likely to invoke the systemic risk exception, which permits the FDIC to protect all depositors, and that would be a case-by-case determination.”

    Meanwhile, Asian markets have remained sluggish and mixed today, without any apparent signs of bearishness carried over. It may take some more time to understand the unfolding situation fully.

    Technically, near term outlook in S&P 500 isn’t too bearish yet given it’s holding inside a near term channel. However, break of 3901.27 support will argue that the corrective rebound from 3808.85 has completed at 4039.49, after hitting falling trend line resistance. Deeper selloff would then follow through 3808.86 to resume whole decline from 4195.44.

    Fed softened hawkish tone, but not dovish

      By
      ActionForex.com
      -

      In light of the Fed announcement and press conference overnight, it appears that another 25bps rate hike is likely in May, followed by a prolonged pause with no rate cut expected until next year. The overall picture remains hawkish, albeit not as much as after Fed Chair Jerome Powell’s earlier testimony this month.

      As anticipated, Fed raised interest rates by 25bps to 4.75-5.00%. While the tightening bias was maintained, the statement softened its tone, stating, “some additional policy firming may be appropriate.” Despite recent market turmoil, median projections still indicated an interest rate peak of 5.1% this year, suggesting one more 25bps hike before pausing until next year. The median projection for 2024 interest rate increased from 4.1% to 4.3%, signaling a slower path of rate cuts.

      During the post-meeting press conference, Powell acknowledged that “financial conditions seem to have tightened” recently, adding that if the situation persists, it could “easily have a significant macroeconomic effect, and we would factor that into our policy decisions.” While he admitted that a pause was considered during the meeting, he emphasized that a rate cut this year was “not our baseline expectation,” stating, “the key is we have to have policies tight enough to bring inflation down to 2%.”

      Suggested readings on Fed:

      Fed chair Jerome Powell press conference live stream

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        ActionForex.com
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        Fed hikes 25 bps, terminal rate forecast unchanged at 5.1%

          By
          ActionForex.com
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          Fed raise interest rate by 25bps to 4.75-5.00% as mostly expected, on unanimous vote. Tightening biased is maintained as “the Committee anticipates that some additional policy firming may be appropriate in order to attain a stance of monetary policy that is sufficiently restrictive to return inflation to 2 percent over time”.

          The terminal rate is still put at 5.00-5.25% this year. But a smaller rate cut is projected in 2024. Growth projections are lowered for 2023 and 2024. Core inflation forecasts were raised slightly for this year and next.

          In the new economic projections (median):

          • Federal funds rate for 2023 was unchanged at 5.1%.
          • Federal funds rate for 2024 was raised from 4.1% to 4.3%.
          • Federal funds rate for 2025 was unchanged at 3.1%.
          • GDP growth in 2023 was lowered from 0.5% to 0.4%.
          • GDP growth in 2024 was lowered from 1.6% to 1.8%.
          • GDP growth in 2025 was raised from 1.8% to 1.9%.
          • Unemployment rate in 2023 was lowered from 4.6% to 4.5%.
          • Unemployment rate in 2024 was unchanged at 4.6%.
          • Unemployment rate in 2025 was raised from 4.5% to 4.6%.
          • Headline PCE inflation in 2023 was raised from 3.3% to 3.1%.
          • Headline PCE inflation in 2024 was unchanged at 2.1%.
          • Headline PCE inflation in 2025 was unchanged at 2.1%.
          • Core PCE inflation in 2023 was raised from 3.5% to 3.6%.
          • Core PCE inflation in 2024 was raised from 2.5% to 2.6%.
          • Core PCE inflation in 2025 was unchanged at 2.1%.

          In the new dot plot:

          • In 2023, the majority, 10 committee members, expect interest rate at 5.00-5.25% , with only one expecting lower rates.
          • In 2024, 14 members at least at least two rate cut from 5.00-5.25% level. Majority of 10 members expect rates to be between 4.00-4.75% range.

          Full FOMC minutes here.

          Full Summary of Economic Projections here.

          ECB Lagarde stresses robust strategy amid high inflation and market uncertainty

            By
            ActionForex.com
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            In a speech today, ECB President Christine Lagarde highlighted the challenges posed by persistent high inflation and increasing uncertainty. She noted, “Since July last year we have raised interest rates by 350 basis points. However, inflation is still high, and uncertainty around its path ahead has increased. This makes a robust strategy going forward essential.”

            Lagarde outlined a three-pronged strategy to tackle these issues:

            1. Data-dependent rate path: Emphasizing the importance of data dependency in times of high uncertainty, Lagarde stated, “This means, ex ante, that we are neither committed to raise further nor are we finished with hiking rates.”
            2. Liquidity support amidst market volatility: Acknowledging recent financial market turbulence, she assured, “We are ready to act and provide liquidity support to the financial system if needed.” Lagarde emphasized the ECB’s proven ability to “set the appropriate policy stance to control inflation and at the same time use other instruments to address risks to monetary policy transmission.”
            3. Clear reaction function: The third element focuses on continuous monitoring of three key inputs – inflation outlook, underlying inflation, and policy transmission. Lagarde explained, “The future calibration of the rate path will be determined by – and will require continuous monitoring of – these three key inputs.”

            Full speech of ECB Lagarde here.

            Bundesbank Nagel insists fight against inflation continues

              By
              ActionForex.com
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              In an Financial Times interview, Bundesbank President Joachim Nagel expressed that the fight against inflation is far from over, despite the ECB’s efforts to curb it. He stated, “Our fight against inflation is not over. There’s certainly no mistaking that price pressures are strong and broad-based across the economy.”

              Nagel emphasized the need for persistence in combating inflation, suggesting that “If we are to tame this stubborn inflation, we will have to be even more stubborn.”

              He also highlighted the progress made by ECB, mentioning that they are “approaching restrictive territory.” However, he warned against the potential pitfalls of stopping rate hikes too soon and succumbing to calls for rate cuts. According to Nagel, doing so would risk a repeat of the 1970s, when “inflation flared up again” following the oil supply shocks.

              As for concerns surrounding the recent banking crisis, Nagel dismissed comparisons to the 2008 financial crisis. He confidently asserted, “We are not facing a repeat of the financial crisis we saw in 2008. We can manage this with the Eurozone’s “resilient” banking system.

              UK CPI rose back to 10.4% yoy in Feb, core CPI up to 6.2% yoy

                By
                ActionForex.com
                -

                UK CPI accelerated from 10.1% yoy to 10.4% yoy in February, well above expectation of slowing to 9.8% yoy. The reading was still below recent peak of 11.1% yoy in October 2022, the highest since 1981. CPI excluding food, energy, alcohol and tobacco (core CPI) jumped from 5.8% yoy to 6.2% yoy, above expectation of 5.7% yoy.

                On a monthly basis, CPI rose 1.1% mom, more than reversing January’s -0.6% mom decline, above expectation of 0.6% mom.

                Full UK CPI release here.

                Also released, RPI came in at 1.2% mom, 13.8% yoy, above expectation of 0.8% mom, 13.2% yoy. PPI input was at -0.1% mom, 12.1% yoy, versus expectation of 0.8% mom, 12.5% yoy. PPI core output was at -0.2% mom, 10.4% yoy, versus expectation of 0.4% mom, 9.9% yoy.

                Fed expected to hike 25bps, divided opinion on future path

                  By
                  ActionForex.com
                  -

                  Today marks a significant moment as Fed is expected to continue with its tightening policy. Amid the recent banking crisis and market turmoil, it is widely anticipated that Fed will raise interest rates by 25bps to the 4.75-5.00% range, with around 85% probability. Fed Chair Jerome Powell is likely to stress the importance of bringing inflation back on target during the post-meeting conference, while acknowledging the current market turbulence.

                  The Fed’s future rate path remains a hot topic of debate. According to Fed fund futures pricing, there is over 55% chance of an additional 25 basis point hike in May, bringing the interest rate to 5.00-5.25%. However, this is followed by a over 62% probability of a -25 basis point cut in June, reverting the rate back to 4.75-5.00%. This apparent contradiction reflects the divided opinions on whether there will be another rate move in May. But in more certainty, traders seem to be leaning more towards a rate cut in September, with around 75% chance of interest rate falling back into the 4.50-4.75% range.

                  The new staff economic projections scheduled for release today were initially expected to provide some clarity on the future rate path. However, it is speculated that the Fed might choose to delay or suspend these projections, as it did in March 2020 during the onset of the pandemic, to avoid creating further confusion. As a result, a clear answer to the future rate path may remain elusive for now.

                  Here are some previews:

                  Australia Westpac leading index remains negative, indicating further slowdown

                    By
                    ActionForex.com
                    -

                    Australia’s Westpac Leading Index rose slightly from -1.04% to -0.94% in February, but it still marks the seventh consecutive month of negative growth rate, pointing to below-trend growth over the next 3-9 months. This is in line with Westpac’s forecast that growth in the Australian economy will be only 1% in 2023.

                    The slowdown reflects the lagged effects of rising interest rates, a deep shock to real wages, a bottoming out of the savings rate, and falling house prices. Westpac also expects the weakness to extend into 2024, with more negative readings likely.

                    RBA indicated in its March minutes that the board intends to consider a pause at its April meeting. However, Westpac does not expect that a decision to pause in April will mark the end of the cycle. It expects new information for the May meeting to indicate the need for a further response from the board, with a final 0.25% increase in the cash rate in May marking the end of the tightening cycle.

                    Full Australia leading index release here.

                    NZ consumer confidence rose slightly to 77.7, but well below long-term average

                      By
                      ActionForex.com
                      -

                      New Zealand’s Westpac McDermott Miller Consumer Confidence Index rose slightly by 2.1 points to 77.7 in March, but still remains well below the long-term average of 108.8. The President Conditions Index and the Expected Conditions Index also increased, but are still far below their long-term averages of 106.1 and 100.6, respectively.

                      Despite the slight uptick in confidence, Westpac notes that households across the country continue to grapple with the increasing costs of living, higher mortgage rates, and a downturn in the housing market. The Expected financial situation has improved, but remains negative at -3.8, while the 1-year economic outlook has only slightly improved to -41.1, and the 5-year economic outlook has dropped to -10.8.

                      The mounting financial pressures are already affecting household spending, and as they become more pronounced, Westpac expects to see an increasing number of households winding back their spending over the next year. This weakness in consumer confidence could have significant implications for the overall economy, as household spending is a major driver of economic growth.

                      Full Consumer Confidence release here.

                      Canada CPI slowed to 5.2% yoy in Feb, below expectation of 5.4% yoy

                        By
                        ActionForex.com
                        -

                        Canada CPI slowed from 5.9% yoy to 5.2% yoy in February, below expectation of 5.4% yoy. Excluding food and energy, CPI slowed slightly from 4.9% yoy to 4.8% yoy. All-items CPI excluding mortgage interest costs slowed from 5.4% yoy to 4.7% yoy.

                        On a monthly basis, CPI rose 0.4% mom, slowed from January’s 0.5% mom, and below expectation of 0.5% mom. Decline in energy prices were offset by rise in mortgage interest costs.

                        Meanwhile, CPI median decreased from 5.0% yoy to 4.9% yoy above expectation of 4.8% yoy. CPI trimmed fell from 5.1% yoy to 4.8% yoy, below expectation of 4.9% yoy. CPI common declined from 6.6% yoy to 6.4% yoy, below expectation of 6.5% yoy.

                        Full release here.

                        German ZEW fell sharply to 13 in Mar, reflecting financial markets pressure

                          By
                          ActionForex.com
                          -

                          German ZEW Economic Sentiment deteriorated sharply from 28.1 to 13.0 in March, below expectation of 14.9. Current Situation index also dropped from -45.1 to -46.5, below expectation of -44.3.

                          Eurozone ZEW Economic Sentiment dropped from 29.7 to 10.0, below expectation of 16.0. Eurozone Current Situation dropped -3 pts to -44.6.

                          ZEW President Professor Achim Wambach said: “The international financial markets are under strong pressure. This high level of uncertainty is also reflected in the ZEW Indicator of Economic Sentiment.

                          “The assessment of the earnings development of banks has deteriorated considerably, although it still remains slightly positive. The estimates for the insurance industry have also declined significantly.”

                          Full German ZEW release here.

                          CAD/JPY ready for down trend resumption as Canada CPI looms

                            By
                            ActionForex.com
                            -

                            Today, Canada’s consumer inflation data takes center stage as markets anticipate a slowdown in headline inflation from 5.9% yoy to 5.4% yoy in February. If this decrease materializes, it would mark the lowest inflation reading in over a year. BoC’s preferred core inflation metrics, the trimmed and median CPI, are also projected to decelerate from 5.1% yoy to 4.8% yoy and from 5.0% yoy to 4.8% yoy, respectively.

                            BoC became the first major central bank to pause its tightening cycle last Wednesday, following eight consecutive rate hikes totaling 425 basis points. Market participants are still expecting one more rate increase this year, but these odds could dwindle if inflation continues to decline.

                            CAD/JPY is closely watching the 94.61 support level after a recent drop. A decisive break below this threshold would rekindle the broader downtrend from the 110.87 high and aim for a 61.8% projection of 110.87 to 94.61 from 100.85 at 90.80. However, if the cross breaks above 97.53 resistance, it could delay the bearish scenario and extend the corrective pattern from 94.61 with another upswing.

                            GBP/AUD resuming rally after dovish RBA minutes

                              By
                              ActionForex.com
                              -

                              Australian Dollar trades mildly lower after RBA minutes indicated the possibility of a pause in tightening at next meeting. On the other hand, Sterling (and Euro too) is supported by funds flow from Swiss Franc. But there are some uncertainties for the Pound ahead with UK CPI and BoE rate decisions scheduled later in the week.

                              Technically, GBP/AUD is resuming the near term rise by breaking last week’s high at 1.8316. At the same time, rise from 1.7218 is likely resuming the whole up trend from 1.5925. Near term outlook will stay bullish as long as 1.8074 support holds, even in case of retreat. Next target is 61.8% projection of 1.5925 to 1.8272 from 1.7218 at 1.8668. Nevertheless, break of 1.8074 support will delay the bullish case and bring some consolidations before another rally attempt.

                              RBA Minutes: To reconsider a pause at next meeting

                                By
                                ActionForex.com
                                -

                                The minutes of RBA’s meeting on March 7 indicate that the central bank is considering a more cautious approach in tightening monetary policy, as uncertainty surrounding the economic outlook persists. The RBA members observed that “further tightening of monetary policy would likely be required to ensure that inflation returns to target.” However, they also noted the restrictive nature of current monetary policy and the economic uncertainty, stating that “it would be appropriate at some point to hold the cash rate steady.”

                                During the meeting, RBA members agreed to “reconsider the case for a pause at the following meeting, recognizing that pausing would allow additional time to reassess the outlook for the economy.” The decision on when to pause will be determined by incoming data and the board’s assessment of the economic situation.

                                The RBA acknowledges that “the outlook for consumption remained a key source of uncertainty.” The central bank will closely monitor upcoming data releases on employment, inflation, retail trade, and business surveys, as well as developments in the global economy, to inform their decision-making.

                                Full RBA minutes here.

                                ECB Lagarde: Price-pressures still spreading through the economy

                                  By
                                  ActionForex.com
                                  -

                                  In a today address to the European Parliament, ECB President Christine Lagarde noted that economic activity indicators have shown steady improvement in recent months, coinciding with diminished concerns over energy shortages and price hikes. However, she cautioned that accumulated price pressures are still spreading throughout the economy, albeit with some delay.

                                  Lagarde observed, “Wage pressures have strengthened on the back of robust labor markets and employees aiming to recoup some of the purchasing power they have lost to high inflation.” She added that due to inflation remaining “too high for too long,” the ECB Governing Council decided to increase the three key interest rates by 50 basis points last week, demonstrating their commitment to returning inflation to the 2% medium-term target.

                                  In light of the heightened uncertainty, Lagarde emphasized the importance of a “data-dependent” approach to policy rate decisions, stating, “Our policy rate decisions will be determined by our assessment of the inflation outlook in light of the incoming economic and financial data, the dynamics of underlying inflation, and the strength of monetary policy transmission.”

                                  Full speech of ECB Lagarde here.

                                  Bundesbank: German economy faces slight Q1 decline, core inflation extraordinarily persistent

                                    By
                                    ActionForex.com
                                    -

                                    Bundesbank’s latest monthly report suggests that Germany’s economic activity is set to decline in the current quarter, though the contraction is anticipated to be smaller than the -0.4% qoq witnessed in Q4 2022.

                                    Despite the downturn, employment leading indicators remained largely stable in positive territory in February, which bodes well for a continued positive development in employment over the coming months.

                                    Inflation in Germany rose slightly to 9.3% in February 2023, up 0.1 percentage points from January. Meanwhile, the core inflation rate increased by 0.3 percentage points to 5.4%, matching the historical high set in December 2022.

                                    Bundesbank predicts a significant drop in the headline inflation rate for March, primarily attributed to the base effect in energy prices. However, the report said, “the core rate is proving to be extraordinarily persistent”.

                                    Full Bundesbank’s monthly report here.

                                    Eurozone exports rose 11.0% yoy in Jan, imports rose 9.7% yoy

                                      By
                                      ActionForex.com
                                      -

                                      Eurozone exports of goods rose 11.0% yoy to EUR 222.9B in January. Imports rose 9.7% yoy to EUR 253.5B. Trade deficit came in at EUR -30.6B. Intra-eurozone trade rose 11.6% yoy to EUR 223.8B.

                                      In seasonally adjusted term, exports fell -1.1% mom to EUR 241.5B. Imports declined -1.8% mom to EUR 252.9B. Trade deficit narrowed slightly from EUR -13.4B to EUR -11.3B, smaller than expectation of EUR -17.3B. Intra-eurozone trade dropped from 239.1B to EUR 229.2B.

                                      Full Eurozone international trade release here.

                                      Gold hits record against Aussie, breaks 2000 against Dollar

                                        By
                                        ActionForex.com
                                        -

                                        Gold breaks above 2000 handle against US Dollar today, and even hit a new record high surpasses 3000 handle against Australian Dollar . Risk selloff picks up momentum as European investors start to react to weekend’s news about UBS takeover of the troubled Credit Suisse. Apparently, the announcement did little to calm investors’ nerve.

                                        For XAU/AUD, it broke through 2873.61 record high (made in 2020) last week and the up trend continues today. For now, near term outlook will stay bullish as long as 2871.30 support holds. Immediate focus is on 100% projection of 2438.01 to 2795.89 from 2648.89 at 3006.77. Sustained break there could prompt further upside acceleration to 161.8% projection at 3227.93. That level is close to long term level of 61.8% projection of 1604.40 to 2873.61 from 2438.01 at 3222.38.

                                        Meanwhile XAU/USD’s rise from 1614.60 is on track to 61.8% projection of 1614.60 to 1959.47 from 1804.48 at 2017.60. A firm break through this level will pave the way for a retest of the 2074.84 record high. In any case, outlook in XAU/USD will remain bullish as long as 1936.15 resistance turned support holds. The long-term uptrend could also be set to resume, potentially reaching 61.8% projection of 1160.17 to 2074.85 from 1614.60 at 2179.86.

                                         

                                        BoJ members support persistent monetary easing, discussed side effects

                                          By
                                          ActionForex.com
                                          -

                                          In the Summary of Opinions from BoJ’s March meeting, many members expressed support for continuing with the current monetary easing and yield curve control. However, there were also discussions on potential side effects and concerns related to the policy.

                                          One member acknowledged the side effects of the current monetary easing, such as distortions in the yield curve. They stressed the need for BoJ to examine market functioning without preconceptions while assessing the balance between positive effects and side effects. Nonetheless, this member believed that the bank should “persistently continue with large-scale monetary easing” in the current phase.

                                          Another member commented that it would take time to examine the effects of modifications in yield curve control on market functioning. They expect that when observed CPI inflation declines and market projections of interest rates calm down, “distortions on the yield curve are expected to be corrected”.

                                          A member warned against hasty policy changes, stating that the risk of missing the chance to achieve the price stability target should be considered more significant than the risk of delaying policy changes, given the current improvements in the price environment.

                                          Another member emphasized the importance of BoJ maintaining its commitment to the 2% price stability target. They argued that starting a discussion on the target could lead to “unnecessary speculation” on monetary policy conduct, despite the growing possibility of achieving the target. Similarly, this member saw no need to revise the joint statement of the government and BoJ.

                                          Full BoJ Summary of Opinions here.

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