Market Talk: Brace for spike in volatility, it’s Fed rate day
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Market Talk
Market volatility is 3x higher during Fed Chairman Jerome Powell's press conferences vs when previous Fed bosses Yellen and Bernanke held the same position
Nick Timiraos, a Wall Street Journal reporter has concluded that when current Fed Chairman Jerome Powell speaks, intraday market volatility increases three times more than when the same press conferences were being held following interest rate announcements given by the previous two Federal Reserve bosses.
Key comments on today’s US Fed rate decision
- Fed funds rate should increase from current 4.75% to 5% after today’s expected 0.25% rate increase
- 12 days ago markets had been expecting a 0.5% hike, however the sudden reduced confidence in the banking system triggered analyst to lower today’s forecast from 0.5% to 0.25%
- Inflation remains high and above the Fed’s long term 2% inflation target
- Like the European Central Bank, the Fed may likely hold back on providing explicit forward guidance on future interest rate direction
The Fed has a history of pushing rates higher during periods of “sticky” inflation until something in the financial system breaks… cracks are now happening in the banking sector
Today’s Economic Events
- 6 pm GMT US Fed Rate decision
- 6:30 pm GMT Fed Chairman Speaks (press conference)
| Time: GMT+0 | Country/Region | Economic Indicator | Previous | Forecast | Actual | Units |
|---|---|---|---|---|---|---|
| 7:00:00 AM | United Kingdom | CPI m/m (inflation) | -0.6 | 0.6 | 1.1 | % |
| 7:00:00 AM | United Kingdom | CPI y/y (inflation) | 10.1 | 9.8 | 10.4 | % |
| 7:00:00 AM | United Kingdom | Core CPI y/y (inflation) | 5.8 | 5.7 | 6.2 | % |
| 2:30:00 PM | United States | Crude Oil Stocks w/w | 1.55M | -1.56M | - | bbl |
| 6:00:00 PM | United States | Federal Funds Rate Decision | 4.75 | 5 | - | % |
| 6:30:00 PM | United States | Fed Chairman Jerome Powell press conference | - | - | - | - |
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Cross asset commentary:
GBP/USD: the case for a bullish outlook reinforced
Higher than expected inflation data to add support for Bank of England rate hike tomorrow
- Current price has cleared above the 1.22 resistance, opening the path for a potential further advance towards a test of the 13 week highs near 1.2247 in the medium term (25-49 days), while downside risk below 1.22 could expose the lower support at 1.2125.
EUR/USD: scope for further extension of the price recovery
- Current price remains above its multi-month uptrend line which started in September 2022. Current price is above its 21 day moving average (bullish), MACD above its signal line (bullish). Resistance at 1.0823 would need to be overcome in order to extend price higher for a move towards the 1.0910 area, downside risk below 1.0480 lower support would signal the end of the prevailing multi-month uptrend.
SPX500 Index: faces resistance ahead of the 50 day moving average
- Current price is approaching its 50 day moving average near the 4,025 area. Provided price can clear above this short term resistance area and remains above the lower 3,946 support, the prospects for an advance towards the 4,120s cannot be ruled out in the short term (14-25 days).
Not investment advice. Past performance does not guarantee or predict future performance.
