A hawkish FOMC dot-plot announcement caught the markets unprepared last night. The USD and Yields rallied as Stocks & Commodities sank on expectations of earlier than expected rate rises.
The Dollar rallied following the FOMC surprise and more volatility can be expected in the weeks ahead across all asset classes. The dot plot median showed two quarter point hikes by the end of 2023, with seven Committee members now expecting a hike as soon as 2022, up from four at the March meeting.
Jobs, Earnings and Unemployment remain very much in focus. The weekly US unemployment claims missed expectations last week but they continue to trend lower; last week’s 376,000 was a jump higher but 360,000 are expected this week.
The vaccine rollouts continue to drive sentiment, but the virus variants remain a significant concern and talk of 3rd or 4th waves persist. The US has passed the grim milestone of 600,000 Covid-19 deaths. The situation in India remains significant but improving, the UK has delayed the full opening of the economy and lockdowns remain in place in countries from Malaysia to Australia.
This week FX volatility jumped following the FOMC announcement. The USDIndex spiked over 91.60 to post 43-day highs, EURUSD collapsed under 1.2000 to 1.1940 and a two-month low. USDJPY spiked over 110.80 for an 11-week high and Cable trades at a 6-week low at 1.3970.
Global stock markets pushed higher to post more new all-time highs. The tech stocks recovered some of their losses but remain volatile as yields cooled and the “Meme” stocks held centre stage. The USA500 touched 4,266 this week, but has now breached support at 4,230, the 20-day moving average and is struggling around the 4,200 level.
The Gold price collapsed again this week, following the dollar gains, even before the FED announcement. It has traded to test the $1800 zone, with the key $1770 61.8 fib level $30 lower. Copper and Silver had a major sell-offs too, the former moving 7% lower after weak industrial data from China and the FED.
USOil prices continue to rally, and this week topped at $72.50 following a significant drawdown inventories. Several analysts are looking for a breach of $80.00 and a $75.00 average price for the second half of 2021.
The yield on the US 10-Year Treasury Note, very much in focus again following the FED holds above the psychological 1.50% level and has spiked to 1.57% up significantly from one-month lows at 1.452% earlier in the week but remain under the key support level at 1.60%.
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Stuart Cowell
Head Market Analyst
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