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US stocks end lower after Fed’s rate move

 

Thursday, December 15, 2022

The news shaping the markets today

Ukraine’s President Volodymyr Zelensky said the country’s air defence forces shot down 13 Iranian-made drones, which sent the US dollar index higher this morning.


Singapore’s unemployment rate declined to 2.0% in the third quarter, from 2.1% in the previous quarter. Despite this being the lowest jobless rate since the third quarter of 2016, the SGD/USD forex pair remained under pressure.


China’s surveyed urban unemployment rate rose to a six-month high of 5.7% in November, from 5.5% a month ago, sending the CNY/USD pair lower in forex trading this morning.


The Hong Kong Monetary Authority increased the base rate by 50 basis points to 4.75%, announcing the seventh rate hike this year. However, the HKD/USD forex pair remained under pressure after the news.


Japan’s trade deficit widened to ¥2,027.4 billion in November, from ¥973.6 billion in the year-ago month, which sent the JPY/USD pair lower in forex trading this morning.

 

What’s happening: US stocks settled lower in a volatile session on Wednesday, following the Federal Reserve’s interest rate decision.

What happened: While raising rates by 50 basis points as was widely expected, the US central bank suggested the need for further rate hikes ahead.

The Dow Jones index had jumped more than 280 points earlier in the session on Wednesday, but settled lower after the Fed’s policy announcement.

Why it matters: The Federal Reserve increased its target fed funds rate by 0.5% to a new range of 4.25% to 4.5% at its latest meeting. This sends borrowing costs to the highest level since 2007. All 12 members of the central bank voted unanimously for the 0.5% increase in rates.

The latest hike was the seventh straight, but was in-line with market estimates. “Inflation remains elevated, reflecting supply and demand imbalances related to the pandemic, higher food and energy prices, and broader price pressures,” the Fed said.

The recent statement came after the Labor Department reported that the country’s economy added 263,000 jobs in November, higher than market expectations of 200,000 jobs. The country’s unemployment rate came in at 3.7%, while hourly wages increased 5.1% year-over-year.

The Consumer Price Index rose 7.1% in November, compared to a 2022 peak level of 9.1% in June.

The Fed also released new “dot plot” economic forecasts, with FOMC members now seeing a 2023 terminal rate of 5.1%, compared to 4.6% indicated in September. The cuts in interest rates are now expected only in 2024.

Fed Chairman Jerome Powell said during a press conference that interest rates could remain elevated for some time, till inflation is down to the central bank’s 2% target.

Other data released on Wednesday showed US import prices declining 0.6% in November, while export prices fell by 0.3%.

The Dow Jones index fell 142.29 points, or 0.42%, to settle at 33,966.35 on Wednesday. The S&P 500 lost 0.61% to 3,995.32, while the Nasdaq 100 declined by 0.79% to 11,740.92.

What to watch: Investors will keep an eye on a basket of economic reports from the US. Data on retail sales, initial jobless claims and industrial production will be released today. Retail sales in the US, which rose 1.3% in October, are expected to grow by just 0.2% in November. Analysts expect jobless claims to increase to 235,000 in the latest week, from 230,000 in the week ending December 3. Industrial production in the US, which contracted by 0.1% in October, is expected to decline by 0.2% in November.

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 pair traded higher on Wednesday, following inflation data from Britain.

Details: Data released on Wednesday showed UK inflation easing from a 41-year high in November. The annual inflation rate in the UK fell to 10.7% in November, from 11.1% in the previous month, which was the highest level since October 1981. The latest figure came in below market expectations of 10.9%.

The UK jobs report showed unemployment rate rising to 3.7% in the August-to-October period, from 3.6% in the prior period, while average weekly earnings, including bonus, rose by a higher-than-expected 6.1% year-over-year to £624. The number of people in work grew by 27,000 in the three months to October.

Policymakers in the UK have been raising interest rates since late 2021 to control surging inflation. The Bank of England is widely expected to announce a hike of 50bps on Thursday, following its 75bps hike at the prior meeting, which was the biggest increase in 33 years. The interest rate decision will be announced shortly after the domestic CPI print.

The US Federal Reserve raised its increased rates by 50 bps at its meeting on Wednesday, which was in-line with expectations. The ECB and Swiss central bank are also expected to raise interest rates.

The GBP/USD forex pair rose around 0.5% to 1.2425 on Wednesday.

What are expectations: Traders await the Bank of England’s interest rate decision today. Markets will keep an eye on data on passenger car registrations, which are expected to grow 23.5% year-over-year in November, following 26.4% growth in October.

Other Markets: European trading indices closed lower on Wednesday, with the FTSE 100, DAX 40, CAC 40 and STOXX Europe 600 down by 0.09%, 0.26%, 0.21% and 0.02%, respectively.

Support & resistances for today

Technical Levels News Sentiment
USD/JPY  – 135.49 and 135.57 Positive
USD/CAD – 1.3550 and 1.3565 Positive
NZD/USD – 0.6446 and 0.6453 Positive
Gold  – 1803.49 and 1806.74 Positive
Copper – 3.8326 and 3.8458 Positive

Market snapshot

Futures at 0400 (GMT)
EUR/USD (1.0651, -0.29%) Dow ($34,251, 0.04%) Brent ($82.04, -0.8%)
GBP/USD (1.2381, -0.35%) S&P500 ($4,030, -0.02%) WTI ($76.54, -1%)
USD/JPY (135.61, 0.10%) Nasdaq ($11,850, -0.16%) Gold ($1,801, -1%)

What else to watch today

Saudi Arabia’s wholesale prices, inflation rate and Saudi Central Bank’s interest rate decision, European Central Bank interest rate decision, European Council meeting and EU’s passenger car registrations, France’s new passenger car registrations, manufacturing climate indicator, business climate indicator and inflation rate, Germany’s wholesale prices and passenger car registrations, Italy’s new passenger car registrations, Turkey’s Foreign exchange reserves and central government budget balance, Spain’s balance of trade, South Africa’s producer inflation and value of recorded building plans, India’s money supply M3, balance of trade and total passenger vehicles sales, Canada’s housing starts, US NY Empire State manufacturing index, Philadelphia Fed manufacturing index, , business inventories and natural gas stocks change, China’s foreign direct investment and Central Economic Work Conference, Argentina’s GDP growth rate and inflation rate, as well as Bank of Mexico’s interest rate decision.


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