MARKET REPORT

Review:
– Fed keeps rates unchanged (as Exp)
– Powell signals MAR rate cut unlikely, inflation is decreasing, still too high, need more evidence
– Rates likely to move down this year, unlikely Mar
– Treasuries up past 4% after falling back on data showing hiring slower than expected, employment costs rose softest pace since Q2 2021 (US ECI & ADP),
– Dollar bounce, Gold pares, Crude down, Equities down
– MSFT & GOOGL earnings underwhelm
– Soft German & French Inflation figures
– Hawkish BoJ SoO

DOLLAR:
– AUD down: 65.55                         -0.55% (66.22 – 65.22) close lows
– EUR up : 92.47                               +0.3% (91.85 – 92.60) close highs
– GPB down smalls: 126.82           -0.10% (127.45 – 126.60) close off lows
– JPY down: 147.00                         0.2% (147.85 – 146.00) close mid rge

GOLD up smalls:                              $2056 +0.3% ($2074 – $2050) close off lows
DOW/ES/ND down:                        38274 -0.9%, 4870 -1.6%, 17250 -1.9% close lows
CRYPTO: BTC/ETH down:               -1200/-3.0% 42360, -110/-4.6% 2274 close lows
CRUDE down:                                  $75.78 -$2/-2.6% close lows

Upcoming:

AU: Trade
BoE: Policy Announcement

Speakers:

ECB: Lagarde, Lane
BoE: Bailey post-announcement press conference

Earnings:   BNP Paribas, Shell, Deutsche Bank, Apple, Merck, Amazon, Meta.

MAJORS:

DX:
The Fed left rates unchanged at 5.25-5.5%, as expected, whilst also making some big changes to the statement to reflect a more balanced outlook towards cuts vs hikes. The Fed’s growth description was upgraded to describing economic activity as “expanding at a solid pace” vs its December description of it having “slowed from its strong pace in the third quarter”. The lines saying the US banking system is “sound and resilient” and that tighter financial and credit conditions are likely to weigh on the economy were both removed, whilst it added a line noting the risks to achieving employment and inflation are moving into better balance. On the policy guidance, the FOMC removed the line “in determining the extent of any additional firming that may be appropriate” to a more dovish/balanced “in considering any adjustments to the target range”, but it gave a hawkish caveat that it “does not expect it will be appropriate to reduce the target range until it has gained greater confidence that inflation is moving sustainably towards 2%”. It also maintained language on the balance sheet, as expected.

In his prepared remarks, Powell said the policy rate is likely at its peak for this tightening cycle and that it will likely be appropriate to begin reducing rates “sometime this year” if the economy evolves as expected, whilst caveating the Fed is prepared to maintain the current policy rate for longer if needed. Powell said reducing rates too soon or too much could reverse the progress in inflation, but at the same time, reducing the policy rate too late could unduly weaken the economy. He described inflation as having “eased notably”, whilst noting risks to achieving the Fed’s goals are moving into better balance. Further on inflation, Powell said the low inflation readings in H2 2023 were welcome but the Fed needs to see continuing evidence to have confidence it is returning to target.
Courtesy of newsquark.com

This is again reaffirming the huge disposition between the previously 6 expected cuts towards Feds stated 3 which was always going to be dollar supportive.

It’s a buy dips in Dollar market until further data/speech indicates differently

Anything around 103 the figure for a turn.

AUD:
“ANYTHING above 66 is A SELL!
Yest Mkt Report.
COUGH
And the day before.”
Last weeks market report.
AUD bravely stuck its head above the 66 rampart by my count over 15+ times in the last week n change only to be shot down, and post Powell, this time permanently (for the time being permanently 😉 ). We did see the market initially interpret Powell as dovish and the AUD shot from 65.80 to 66.20 before collapsing to 66.50, short covering into a close of 65.71.
Local data had the Aussie fell in APAC trade after soft Q4 CPI with Q/Q and Y/Y printing 0.6% (exp. 0.8%, prev. 1.2%) and 4.1% (exp. 4.3%, prev. 5.4%), respectively.

Sell bounces, go with Greenback strength, look for a move to test the 65 handle.

65.84 – 65.13

EUR:
Before the Fed, EUR managed to eke out marginal gains vs. the USD post-ADP and shrug off initial losses in what was a busy day for European data – saw soft inflation metrics for France and Germany.

“Like anything with a 91 handle but PCE on cards”.
Last Mkt Report.
Since then we’ve drifted a few times to the 91 handle only to see firm support.

Buying dips going with upward movement as see continued information that the EU will outperform on rate cuts. Softer FR & GER data is supported by a hawkish Powel.

Looking for a larger move upward for the Euro.

92.18 – 92.93

POUND:
BoE is on Thursday, with a slew of EZ data.

No call.

1

YEN:
JPY was the clear G10 outperformer pre-and-post Fed, and the only G10 currency to firm against the Dollar. Wednesday’s USD/JPY slide was fuelled by a fall in 2-year Treasury-JGB yields spreads in the wake of a hawkish BoJ summary that supported speculation of a spring rate hike. Some cited the Yen strength on haven demand amid the previously mentioned regional bank woes. However, as the Buck rose to session highs on Powell’s March cut comment the Yen pared some gains heading into the APAC session.

No call.

1

GOLD & SILVER:
Early strength on weaker US data pushing the case for the Mar cut has flipped and given back on Powell.
$2055 – $2075 back to close $2055

Silver same story. Dancing around the critical $23 level. Holding, for now.

Got Gold wrong last week, no call or strong feel.

EQUITIES:
US INDEXES:
– SPX: -1.61% 4,845
– NDX: -1.94% 17,137
– DJIA: -0.82% 38,150
– RUT: -2.45% 1,947

EUR INDEXES:
– DAX: -0.40% 16,903.76
– FTSE 100: -0.47% 7,630.57
– CAC 40: -0.27% 7,656.75
– Euro Stoxx 50: -0.35% 4,646.45

SECTORS (W to S): Communication Services -3.93%, Technology -2.11%, Energy -1.9%, Consumer Discretionary -1.85%, Materials -1.27%, Financials -1.21%, Industrials -1.14%, Real Estate -0.71%, Consumer Staples -0.68%, Utilities -0.29%, Health -0.11%.

STOCKS:
Microsoft  -2.7% and Alphabet -7.5% are lower despite top-and bottom-line beats, with the former weighed on by rising AI costs and the latter a small miss on Q4 Google ad revenues. Analysts note GOOGL and MSFT weakness is largely due to heightened expectations (as opposed to operational performance), as the bar for tech earnings edged higher throughout the start of the Q4 earnings season on account of some blow-out reports (ASML, NFLX, SMCI, and TSMC).
– Boeing  +5.3%: Posted a shallower loss per share than expected and beat on revenue, but suspended FY24 outlook.
Mastercard +0.9%: EPS and revenue beat.
Nike -2.6%: Co. shares took a hit after Adidas (ADS GY/ADDYY) profit guidance came in beneath expectations.


OIL:
WTI (H4) SETTLED USD 1.97 LOWER AT 75.85/BBL; BRENT (J4) SETTLED USD 1.95 LOWER AT 80.55/BBL

The crude complex was lower on Wednesday and weighed on by broader risk-off sentiment, a faltering Chinese economy and a US crude stock build. On the former, a dismal New York Community Bancorp (NYCB) release weighed on regional banks, sparking haven demand on regional banking fears, while weakness in tech behemoths Alphabet (GOOGL) and Microsoft (MSFT) escalated the risk-off feel and US equity weakness. Moreover, weighing on oil was disappointing data from the largest importer – China, as the country’s Manufacturing PMI remained in contractionary territory for the fourth consecutive month. Lastly on the risk factors, there was a surprise build in Crude stocks in the weekly EIA data, with production rising 700k BPD to 13mln as producers ramped up output following freezing weather earlier this month. Elsewhere within the release, and in-fitting with the private inventory metrics on Tuesday night, Distillates drew more than expected with Gasoline building short of forecasts. Separately, according to a Reuters survey, OPEC January oil output fell to 26.33mln BPD (-410k BPD from December) on new cut pledges and Libya outages. Note, oil was largely unmoved on the more hawkish than expected FOMC statement, with WTI and Brent grinding lower throughout the US afternoon to settle at session lows. Looking ahead, participants await any further Middle East updates as well as a slew of data cumulating with US jobs report on Friday. Oil report courtesy of newsquark

BOND YIELDS:
US 1-MO 5.378 +0.001 US 6-MO 5.21 -0.005 US 1-YR 4.729 -0.068 US 5-YR 4.839 -0.158 US 10-YR 3.918 -0.139 US 30-YR 4.173 -0.105
2YR/10YR -0.29

CRYPTO:
We did get my anticipated break back into the 40k’s and 2200 did hold as called last report.
BTC made it as high as 43750 before today giving back 2% to ‘close’ 42500, around lows.
My favoured 2200 level in ETH held and it jumped to 2350, a 7.5% jump. But its back trading 2280 down 4% today.

Still favour buying dips. A TURN on a 41 handle or sub 2250 would be my thought process moving ahead.

Best of luck out there. Let the market come to you

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