Today marks the most significant day of the week. It’s the day of the Federal Reserve meeting, during which the expectations of officials regarding the timing of the first rate cut will become clear, and the market will begin to price it in. Today’s fluctuations are highly volatile, emphasizing the need for risk management.
Apart from this crucial economic data, earnings reports continue to roll in. Amazon’s earnings report was released, once again showcasing positive results from major companies.
Gold prices experienced a decline towards the end of the US trading session, while Bitcoin has seen a 5% decline so far. This downward momentum heralds the possibility of hawkish stances from Fed officials, especially from Powell (Chair of the Federal Reserve).
Economic Events:
In addition to the FOMC meeting, today’s agenda includes the release of the US unemployment claims data.
Following a relatively significant blow to employment and the slowing down of the US economy, Fed members still anticipate a faster reduction in core inflation. To this end, the policy of keeping interest rates higher for longer is being considered. This notion has already had a notable impact on the market ahead of the meeting.
The dollar index reached 106.20, indicating market pricing heavily leaning towards a hawkish tone in the FOMC session. In the face of persistent inflation concerns and a cautious economic outlook, the Federal Reserve finds itself in a holding pattern, a stance likely to be reaffirmed as it concludes its meeting on Wednesday.
Market expectations suggest little chance of any interest rate changes from the Federal Open Market Committee (FOMC), leaving the Fed’s overnight borrowing rate targeted between 5.25% and 5.5% for an extended period. Recent statements from policymakers and financial analysts indicate a consensus that the committee’s options are limited at present.
The only anticipated news from the meeting may concern the Fed’s plans to scale back its bond holdings, a process known as quantitative tightening. Amidst this backdrop, attention remains focused on the Fed’s cautious stance on interest rates.
Confidence among officials, including Chair Jerome Powell, remains contingent on signs of sustained progress toward the Fed’s 2% inflation target. While Powell’s remarks have held market sentiment in check, there’s always room for surprises. Although no major policy shifts are expected from the FOMC statement, Powell’s press conference could offer insights into the committee’s hawkish stance.
Despite encouraging signs in the market following Powell’s comments, recent inflation data continues to challenge the Fed’s outlook. Key indicators, such as the personal consumption expenditures price index and the employment cost index, underscore inflationary pressures that could influence the Fed’s future decisions.
Looking ahead, market expectations suggest a gradual path for rate cuts, with some analysts forecasting potential adjustments in July and November. However, uncertainties surrounding inflation and global economic conditions could alter this trajectory.
As the Fed navigates these challenges, one area of focus will be its balance sheet management. Discussions around reducing bond holdings highlight policymakers’ efforts to maintain flexibility amidst evolving economic conditions.
Source : Dailyfx
Earnings:
Amid high expectations, three prominent players in the artificial intelligence (AI) arena—Amazon, AMD, and Super Micro Computer—reported earnings on Tuesday. While the results were generally positive, the market’s initial reaction was somewhat disappointing. Only Amazon’s shares saw a modest increase in after-hours trading, despite robust demand for AI-related products and services.
The market’s reaction reflects a shift in sentiment, where investors seem more inclined to penalize perceived missteps rather than reward successes, signaling a potential change in the tech sector’s trajectory after a year of impressive gains. The discrepancy between strong financial performance and tepid market response is exemplified by Super Micro’s experience, where the company reported a remarkable 200% revenue growth yet failed to inspire investor confidence.
Against this backdrop, the stock market may need to recalibrate its expectations and navigate without relying heavily on AI as a savior from broader economic concerns. This shift comes at a precarious time, especially amid growing concerns over persistent inflationary pressures and the prospect of prolonged periods of elevated interest rates.
The recent release of the employment cost index data, indicating higher-than-anticipated wage growth in the first quarter, has further fueled apprehensions about inflation and its implications for Federal Reserve policy decisions. As the Fed convenes to deliberate on interest rates, the timing and extent of rate cuts in 2024 remain uncertain, adding to market uncertainty and volatility.
Additionally, consumer sentiment in the U.S. appears to be waning, as reflected in the decline of the consumer confidence index to its lowest level since 2022. Reports of slowing consumer spending, such as Starbucks’ announcement of reduced customer expenditure in the first quarter, underscore concerns about the health of the consumer-driven economy.
with AI’s role as a market catalyst called into question and mounting concerns over consumer spending, stocks are increasingly vulnerable to a range of risks and uncertainties. As investors assess the implications of these developments, the market outlook remains clouded by uncertainty, requiring careful navigation and risk management strategies.
Source : Earningswhispers
Gold (XAUUSD):
In the previous report, we hinted at the potential decline in gold prices due to diminishing geopolitical risks on one hand and the anticipation of a strengthened dollar on the other. Currently, critical support levels for gold have been breached, indicating a likelihood of experiencing a deeper correction in its value. Consequently, new support ranges, defined as fair price points, have been identified on the gold chart. Among these, the $2225 range emerges as a pivotal support level for gold, bearing significant importance.
S&P500:
SP500 traded relatively indecisively before the opening of the US trading session, experiencing slight gains. However, with the FOMC meeting on one side and upcoming earnings reports on the other, significant volatility is anticipated. In the event of further decline, SP500 could test the $4880 level, while a retest of the broken pattern could potentially propel the index towards the $5030 range
Foreign Exchange Market (FOREX):
Yesterday witnessed a significant surge in the value of the dollar following the release of the Employment Cost Index report, which exceeded expectations by rising 1.2% quarter-on-quarter seasonally adjusted annual rate (SAAR). Consequently, the DXY saw an impressive increase of nearly 60 basis points. This development possibly signals another breakout from the bull flag pattern, potentially propelling the DXY to surpass the 107 mark and even ascend further beyond that level.
Bitcoin (BTC):
In the previous report, the possibility of breaking the $61,000 range and the likelihood of a sharp decline from that support level were mentioned.
Yesterday, Bitcoin experienced a notable decline, plummeting by 6.5% and breaching the crucial $60,000 threshold. Currently, there appears to be minimal support between its current value and the $51,000 mark.
US Crude Oil WTI :
Oil was also unaffected by dollar pricing and experienced a nearly 1.5% decline before the US market opened. The crucial range for oil was broken, and it can be expected that oil will be traded around $79 per barrel.
The MTC team wishes you a great day ahead!
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