Trading Idea: Jerome Powell has warned the markets, did you hear his message?
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Skilling Writers Team
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Market Talk
The best central bankers are the best communicators
The Fed has warned markets that on the way towards bringing down inflation to their 2% target, the Fed will break things along the way.
- Banks will lend less: Every investor, trader, borrower, government, and company should understand that tighter credit conditions are on the way.
- Yesterday, Fed Chairman Jerome Powell communicated the above message very clearly. The Fed is embarking on installing tighter credit conditions as a supporting tool to help fight higher inflation
- This will be a period of “bumpy” inflation slowdown i.e. expect more bank/corporate/mortgage payment failures etc…
Fed Chairman said that “A pathway to a soft landing still exists”
Stock Indices 5 day percentage moves
- Global stock indices gaining in the background over the last 5 days
Jerome Powell’s clear communication to the markets could be a supporting factor for investors willingness to support stock markets
| Stock Index | Last | % Day % moves |
|---|---|---|
| Euro Stoxx 50 Index | 4,195.70 | 3.98% |
| FRA40 Index | 7,131.12 | 3.56% |
| DAX Stock Index | 15,216.19 | 3.26% |
| ESP35 Index | 9,009.30 | 2.86% |
| US100 Index | 12,567.15 | 2.58% |
| Swiss Market Index | 10,782.28 | 2.53% |
| Norway OBX Index | 1,073.18 | 1.61% |
| SPX500 Index | 3,936.97 | 1.16% |
| SGX CNX Nifty Index | 17,151.90 | 1.06% |
| Nikkei 225 Index | 27,466.61 | 0.90% |
| US30 Industrials Average | 32,030.11 | 0.49% |
| Hang Seng Index | 19,591.43 | 0.26% |
| ASX 200 Index | 7,015.60 | -0.75% |
| Brazil Bovespa Index | 100,221.00 | -2.39% |
| FTSE 100 | 7,460.00 | -3.51% |
| CBOE Volatility Index | 21.46 | -6.70% |
Today’s Economic Events
- Swiss central bank (SNB) increased 0.5% as expected, inflation seen as persisting which could support even higher rate hikes further out
- Norway central bank (Norges) likely to hike 0.25% with prospects for projections from Norges of more rate hikes if peak inflation remains further away
- Bank of England (BoE) it's likely that the BoE could leave rates unchanged, the UK is a services-based economy and recent service inflation has been decelerating. This slowdown could support the BoE to remain unchanged in today's rate announcement
| Time: GMT+0 | Country/Region | Economic Indicator | Previous | Forecast | Actual | Units |
|---|---|---|---|---|---|---|
| 8:30:00 AM | Switzerland | SNB Policy Rate | 1 | 1.5 | 1.5 | % |
| 9:00:00 AM | Norway | Interest Rate Decision | 2.75 | 3 | - | % |
| 12:00:00 PM | Great Britain | Bank of England Bank Rate | 4 | 4.25 | - | % |
| 2:00:00 PM | US | New Home Sales | 0.67 | 0.65 | - | - |
| 2:30:00 PM | US | Natural Gas Stocks w/w | - | - | - | Bcf |
| 3:00:00 PM | Euro area | Consumer Confidence (p) | -19 | -18.2 | - | - |
Cross asset commentary:
Silver entering a bull market cycle The strong price reversal that accrued at $19.90 supports the case for a potential new bull cycle for silver price. Current price is above its 13 and 26 week moving averages (bullish), longs may have their sights on $23.5 and $24.6 further out, while shorts may be looking for a price break below the $21.60 support for a possible retest of the $19.90s.
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EU Stocks 50 Index keeping alive the prospects for the bullish cycle to continue
Strong price recovery supporting the prospects for the EU Stocks 50 Index to continue to push higher. Current price is above its 13 and 26 week moving averages (bullish), rate of change 4 and 13 week are both above their respective signal lines (bullish), strong price support at the 4,072 level which happens to intersect at the multi-month upward trend line adds to support the bullish technical outlook.
Commodities Bullets
- Gold price remains bullish, higher inflation outlook helping to support price, the price break above $1,960s renews the prospects or the restart of the September bull market, moves towards $2,075 can not be ruled out over the medium term (26-49 days) provided price can hold above the $1,844 lower support
- Brent crude Oil hitting resistance near $75.5, the recent multi-day upward move looks to be a “corrective bounce”, downside risk remains provided price can not close above $76.5, while the upside on a break above the $76.5s could be capped at $81.65
FX Bullets
- USD/JPY downtrend remains intact, bearish price extension lower towards a test of the February 2nd near 128.10 can not be ruled out provided price remains below the 132.5 resistance
- EUR/USD bullish cycle in play, however, price is at risk of a short term correction, trader focus is on the next key resistance area near 1.10, a break above could keep the bullish cycle alive, very short term downside support at 1.0760
Not investment advice. Past performance does not guarantee or predict future performance.
