The Federal Reserve stuck to traders’ expectations
Wall Street flooded by volatility on Wednesday after the US Federal Reserve announced a more or less expected 25 bps rate hike. Fed also advised that it is thinking on pausing future hikes, as Fed acknowledget the recent turmoil in the financial sector.
It was the second consecutive 25 bps rate increase, moving down from the 50bps hikes before. Fed expects one more hike this year, however not planing on cuts so far. After initial gains on the dovish Fed results, with the major indicies gained more than 1%.
Fed rates chart, source: tradingeconomics.com
The banking sector, however, turned around after a two days of hopeful gains. First Repubic bank fell more than 15% again. Western Alliance lost 5% and Comerica is almost 9% in the red.
“The US banking system is sound and resilient. Recent developments are likely to result in tighter credit conditions for households and businesses and to weigh on economic activity, hiring, and inflation” the Fed said in a statement.
Nike dropped 5% after the sporting goods manufacturer raised its income outlook, however, Nike also advised there may be margin pressures. All the big corps – Apple, Amazon, Microsoft, Alphabet, and Facebook lost from 1% to 2%.
The market ultimately turned red across the board, as Powell shut down all speculation of rate cuts this year. S&P 500, Dow jones , and Nasdaq all dropping more than 1.5% into the red.
US dollar is slipping as well
The US dollar has not been acting as a safe haven today. The greenback‘s index brought back some of the losses by the end of the session from being 1% down, to close 0.7% lower at 102.172 after today’s clean out. The dollar should fall in the next weeks and days as a result of the Fed’s dovish hike if financial sector liquidity concerns remain in check.
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EUR/USD reached levels above 1.0900 for the first time since early February after rising more than a hundred pips following the Federal Reserve meeting. Finally, EUR/USD managed a healthy 0.83% gain at 1.0856.
The dollar sank 0.82% versus the Japanese currency. The Aussie increased 0.29% against the US dollar to $0.669, while the New Zealand dollar rose 0.57% versus the US dollar to $0.623.
Inflation in the United Kingdom was significantly higher than anticipated in February, putting Bank of England officials in an awkward spot as they gather on Thursday. This took sterling higher by 0.42% on the day to $1.2268.
Commodities are the heroes of the day
After a mild bump below $70, WTI is on the rise again, aiming for the third consecutive green day. The dollar’s weakened state made black gold more available for buyers not using the US dollar. The EIA also reported rising stockpiles in crude, however the reserves of derivates and destilates fell, which is indicating rising demand.
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WTI crude futures for May delivery ended up 0.45% at $70 flat. Last week, the US benchmark lost more than 13% of it’s value. Brent, the UK crude, futures closed the day above $75, at $75.81 with a 0.65% gain.
The real safe havens were the prescious metals. Gold futures for April ended 1.58% higher at $1971.8. The yellow metal briefly crossed the $2000 mark on Tuesday. Silver futures for May delivery shot up more than 2.5%, to close above $23, a level last seen in February.
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