The Fed is done with hiking?

BY Janne Muta

|May 11, 2023

While the Nasdaq (+1.11%) traded higher yesterday the other indices we track edged a little lower. DJ, DAX and FTSE shed 0.19%, 0.33% and 0.16% respectively. The April CPI came in at 4.9% y/y, which was slightly below expectations of 5.0% and is the 10th month of declines in the headline inflation since peaking in June 2022.

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Treasury yields moved lower from 3.522% to 3.443%, as markets expect the lower inflation numbers indicate the Fed will remain on hold at the June and July FOMC meetings. Some analysts expect the Fed rate cuts to start in the September meeting. The US April PPI inflation data release is scheduled for today. It is expected to fall to 2.4% y/y, while the core inflation is expected to moderate to 3.3%.

Technology stocks, usually most sensitive to interest rates, were the top performers in trading as the lower CPI numbers raised expectations that the Fed is now done with the rate hikes. Alphabet and Advanced Micro Devices were among the leading S&P 500 gainers with increases of 4.1% and 2.1%, respectively. Meanwhile, Amazon.com shares rose by approximately 3.4% and achieved their seventh consecutive day of gains, which is the longest winning streak since July 2022. Today’s main risk events are the BOE rate decision and the US PPI release.

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GBPUSD could turn bearish below 1.2602. With a decisive break below the level, the market might move to 1.2550 and then possibly to 1.2500 on extension. Above 1.2602, look for a move to 1.2680. The markets expect to see a 25 bp hike from the BOE today. Price action after the event tells us what the markets had (or had not) priced in. As usual, trade price reactions at key price levels and not your own expectations of either the rate hike or the subsequent move in the market. The key levels for GPBUSD are 1.2436, 1.2578 and 1.2680.

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Nasdaq is bullish above 13 138 and might trade to 13 500 first and then possibly to 13 557 on extension. Below 13 138 the market could trade to 13 020 or so. Nasdaq has been stronger than DJ or Russell 2000 suggesting the market will be on the radar of those investors that look to invest in the market leaders and relative strength.

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FTSE penetrated the 7717 level but the move was rejected and the market now trades above the threshold level. A decisive break above yesterday’s high (7780) would probably move the market to 7820 or so. If the market starts to drift below 7717 we might see a retracement to the last week’s low at 7688. The nearest key price levels for FTSE are 7688, 7717, 7780 and 7807.

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Silver could turn bearish below 25.16. If there’s a decisive break below the level, look for a move to the 24.57 support. Above 25.16 the market could move to 25.65.

The Next Main Risk Events

  • GBP BOE Monetary Policy Report
  • GBP MPC Official Bank Rate Votes
  • GBP Monetary Policy Summary
  • GBP Official Bank Rate
  • GBP BOE Gov Bailey Speaks
  • USD Core PPI
  • USD Unemployment Claims
  • USD FOMC Member Waller Speaks
  • USD 30-y Bond Auction
  • NZD Inflation Expectations
  • GBP Prelim GDP
  • USD Prelim UoM Consumer Sentiment
  • USD Prelim UoM Inflation Expectations

For more information and details see the TIOmarkets economic calendar.

Trade Safe!

Janne Muta
Chief Market Analyst

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Janne Muta

Janne Muta holds an M.Sc in finance and has over 20 years experience in analysing and trading the financial markets.

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