18 March 2021

Dow Closes Above 33,000 On Fed Policy Announcement

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News shaping
the markets today

     

What’s happening: Wall Street settled higher on Wednesday, after the Federal Reserve announced its latest policy decision.

What happened: The Dow Jones index ended above the major 33,000 resistance level for the first time in history, after the Federal Reserve said it expects to keep interest rates unchanged through 2023.

Investors cheered the central bank’s higher projections for economic growth in 2021, while shrugging off higher estimates for core inflation.

Why it matters: As widely expected, the FOMC (Federal Open Market Committee) announced plans to hold interest rates near zero, while reemphasising its commitment to continue the asset purchase program.

The Fed significantly raised its economic growth projections for 2021 to 6.5%. This growth is likely to cool off in subsequent years towards the typical 2%-3% growth the US economy had been averaging before the pandemic. The country’s economy is expected to expand by 3.3% in 2022 and by 2.2% in 2023.

Along with the higher GDP growth estimate, FOMC members also revised their unemployment rate projection for the year from 5% to 4.5%. This marks a meaningful decline from the current unemployment rate of 6.2%.

However, expectations for the core inflation rate were also raised to 2.2% for 2021. The committee expects this to cool off to 2% in 2022.

“We do expect that we’ll begin to make faster progress on both labour markets and inflation as the year goes on because of the progress with the vaccines, because of the fiscal support that we’re getting,” Fed Chair Jerome Powell said. “We expect that to happen, but we’ll have to see it first.”

The 10-year Treasury yield pared gains following the central bank’s update. Yields rose by 2 basis points to 1.64%, after rising as high as 1.689% earlier in the session. Rising yields have been adversely impacting growth stocks in recent weeks, with investors adding more value stocks to their portfolio.

The Dow Jones index jumped 189.42 points to 33,015.37 on Wednesday, settling above the 33,000 level for the first time. The S&P 500 added 0.3% to reach a record closing high of 3,974.12, even after declining around 0.7% earlier in the session.

The Nasdaq 100 wiped out previous losses and closed the session 0.38% higher, at 13,202.38. The tech-laden index had declined around 1.5% earlier in the session, with growth stocks remaining under pressure due to high bond yields.

What to watch: Markets await data on initial jobless claims, Philadelphia Fed manufacturing index and CB’s leading index from the US. The number of Americans filing for jobless benefits is expected to decline to 700,000, from 712,000 in the first week of March. The Philadelphia Fed manufacturing index is projected to decline slightly to 23 in March, from 23.1 in February. Analysts expect the leading index to rise 0.2% in February.

The Markets Today

     

The British pound will be in focus today, ahead of the Bank of England’s interest rate decision.

Context: The GBP/USD traded higher on Wednesday, after the UK dismissed safety concerns around AstraZeneca’s covid-19 vaccine.

Details: The EU nations have suspended the rollout of the covid-19 vaccine developed by AstraZeneca and Oxford University due to concerns around blood clotting. Britain’s regulator said, however, that there was no evidence of a link between blood clots and the vaccine.

Vaccine safety concerns had resulted in a meaningful selloff in the pound on Tuesday, despite the UK continuing to administer the shots. Sterling rebounded after the EMA (European Medicines Agency) reiterated that AstraZeneca’s vaccine is still safe to use.

“UK authorities have dismissed safety concerns on the AstraZeneca vaccine, which should leave the pound less vulnerable than other European currencies to the suspension story,” said strategist at ING.

The British pound has benefitted this year from the rapid rollout of vaccines in the country, which triggered some recovery in the economy, after the worst contraction in around 300 years in 2020.

The GBP/USD reached its strongest in around 3 years, but soon pared the gains due to rising US bond yields supporting the greenback. The GBP/USD forex pair closed the session higher at $1.3963 on Wednesday.

What to watch: Markets await the central’s bank decision on interest rates. The Bank of England is widely expected to keep its benchmark interest rate unchanged at a record low level of 0.1%. Investors will also focus on the bank’s comments regarding a negative rate scenario.

Rising covid-19 cases remain one of the top concerns for markets, with total infections approaching 4.3 million in the UK.

Other Markets: European trading indices closed mostly lower on Wednesday, with the FTSE 100, French 40 and STOXX Europe 600 Index down by 0.60%, 0.01% and 0.45%, respectively. The German DAX 30 bucked the trend, adding 0.27%.

Support & Resistances
for Today

     

market snapshot

     

Futures at 0400 (GMT)

What else to watch today

     

The Bank Indonesia’s interest rate decision, Italy's balance of trade, Eurozone's balance of trade, labour costs and wage growth, Turkey's motor vehicle production, South Africa’s value of building plans passed, Turkey’s foreign exchange reserves and Central Bank of Turkey’s interest rate decision, Argentina’s current account, Canada’s ADP employment change and new housing price index, as well as the US EIA’s natural gas stocks change.

 

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