Jump to content

Interest rate preview: watching Fed and ECB after hawkish RBA


Recommended Posts

Has the Reserve Bank of Australia (RBA) set the scene for a dose of reality that central banks are still far from done on raising rates?

 Jeremy Naylor | Analyst, London | Publication date: Tuesday 02 May 2023 
 

The RBA raised rates by another 25 basis points and said it is still not done.

On Wednesday, the Federal Funds Rates is expected to rise by 25 basis points to a target range of 5%-5.25%.

For the European Central Bank (ECB), a day later, a majority of economists expect the main refinancing rate to rise by 25 basis points to 3.75%.

IGTV’s Jeremy Naylor looks at these two risk events for the markets.

Link to comment

FOMC preview: preparing a pause and what it means for US equities

As the Federal Reserve is expected to signal a pause in rate hikes, the question remains whether strong earnings reports will continue to support the market, or will it leave investors searching for the next catalyst?

 

BG_federal_reserve_fed_jerome_powell_454Source: Bloomberg

 
 Tony Sycamore | Market Analyst, Australia | Publication date: Tuesday 02 May 2023 

In some ways, we shouldn’t be surprised. Like the March FOMC meeting, the lead-up to Thursday’s FOMC board meeting has featured another banking failure.

However, the swift and tidy resolution around First Republic Bank this week has created none of the uncertainty seen ahead of the last FOMC meeting.

Instead, the interest rate market and commentators expect the Fed to deliver a 25bp rate hike, raising the target range of the Fed Funds to 5-5.25%. The real focus will be on if and how the FOMC adds some flexibility ahead of a possible pause in June.

What is expected?

The FOMC is expected to signal a pause and retain a tightening bias using wording similar to the RBA used for its pause in April - noting that the timing and size of future rate hikes will depend on incoming data and information.

The Fed will also note that interest rates will likely remain high for an extended period which contrasts with the rates markets pricing of 50bp of rate cuts from September into year-end.

What does a pause mean for US equities?

Historically US equities have typically rallied after a Fed pause. However, each cycle is different.

US stock markets have rallied strongly from their October lows in anticipation of an imminent Fed pause which led to the interest rate-sensitive Nasdaq ruling off on its best quarter since June 2020. Hence there is a good argument to say that a Fed pause is already priced in.

The Fed is unlikely to open the door to possible rate cuts this year which could have been the catalyst for another leg higher. Instead, as explained above, they will note that rate hikes will remain high for an extended period.

Perhaps the wild card in all of this is that the run of strong US earnings either continues or runs out of steam over the next fortnight.

According to FactSet of the 53% of S&P 500 companies already reported, 79% have reported a positive EPS surprise, and 74% have reported a positive revenue surprise, pushing back expectations of an earnings recession.

S&P 500 technical analysis

The S&P 500 is trading at the top of its multi-month 4210-3800 range. While below range highs 4210/00 area, we continue to look for a test of 4000 and then 3800 in the months ahead.

However, should the S&P 500 see a sustained break above 4210 (three daily closes above), it will put the August 4327 high on the market’s radar.

S&P 500 daily chart

 

Picture1fomc-preview--preparing-a-pause-Source: TradingView

Nasdaq technical analysis

After a storming run across the finish line, the Nasdaq ended the month of April in positive territory (+0.49%) after holding and bouncing from important support highlighted at 12,800.

Should the Nasdaq continue to hold the support at 12,800 and then see a sustained break above the recent 13,348 high, it would set up a retest of the August 13,740 high.

Aware that if the Nasdaq were to fail from here and then see a sustained break below 12,800, it would signal that a deeper pullback is underway towards 12,400 with scope to the 200-day moving average at 12,100.

Nasdaq daily chart

 
 

Picture2fomc-preview--preparing-a-pause-Source: TradingView

Dow Jones technical analysis

The Dow Jones completed April with a 2.5% gain for the month, posting a bullish close above the downtrend resistance from the bull market 36,952 high.

If the Dow Jones can now take out the 34,342 high year-to-date high, it opens a test of the 34,712 high from December 2022 with a scope to the 35,492 high from April 2022.

Aware that a retreat much below 32,000 would suggest the Dow Jones's latest attempt to break higher has failed and that a deeper decline towards support at 32,670 (from the 200-day moving average) is underway.

Dow Jones daily chart

 

Picture3fomc-preview--preparing-a-pause-Source: TradingView

  1. TradingView: the figures stated are as of May 2, 2023. Past performance is not a reliable indicator of future performance. This report does not contain and is not to be taken as containing any financial product advice or financial product recommendation.
Link to comment

Create an account or sign in to comment

You need to be a member in order to leave a comment

Create an account

Sign up for a new account in our community. It's easy!

Register a new account

Sign in

Already have an account? Sign in here.

Sign In Now
  • image.png

  • Posts

    • Wheat Elliott Wave Analysis Function - Trend Mode - Trend Structure -Impulse wave Position - Wave A of (B) Direction - Wave A of (B) is still in play Details -  Wheat daily and H4 have been adjusted due to how fast and deep decline from 720’4 has emerged. The long-term forecast on the daily chart shows that the surge to 720’4 is part of the impulse wave from March 2022. We are now in wave (5) which is expected to emerge into a 3-wave structure. Price now appears to be in wave A after which it will correct upside for B before returning downside. Overview: Since late May, grain prices have been falling sharply, with Wheat shedding over 20% since May 28th, 2024. This decline is about to erase the gains made from mid-April to late May. The nearly one-month sell-off adds to the long-term decline from March 2022, when Wheat traded at 1364’4. Currently trading at 571’4, Wheat is likely to fall further toward 500 in the coming weeks.   Daily Chart Analysis: The decline from March 2022 is forming a bearish impulse wave structure in the primary degree. The 5th wave is completing a diagonal structure, which has been the most time-consuming among the actionary waves, lasting nearly 21 months. The price is currently in wave (5) of 5 (circled), which will likely evolve into a 3-wave structure targeting the 500 major psychological level.   H4 Chart Analysis: The H4 chart shows the sub-waves of wave (5), which is now close to completing its first leg - wave A of (5). A corrective bounce is expected to follow for wave B before the price turns downside for wave C of (5) toward 500, provided the 720’4 pivot is not breached. Wheat and other grains are overwhelmingly bearish and may continue in this direction for the next several weeks before major bullish corrections begin.   In conclusion, Wheat prices remain bearish with potential for further declines, targeting the 500 psychological level, contingent on the completion of the current corrective wave B and the subsequent wave C of (5). Technical Analyst : Sanmi Adeagbo Source : Tradinglounge.com get trial here!  
    • Dear @Naren12166, Thank you for the post. Please note that we don't have a definite date but the product team is in the testing phase, a few countries should have Trading View soon. Thanks, KoketsoIG
    • TXN Elliott Wave Analysis Trading Lounge Daily Chart, Texas Instruments Inc., (TXN) Daily Chart TXN Elliott Wave Technical Analysis FUNCTION: Counter Trend MODE: Corrective STRUCTURE: Triangle POSITION: Wave {iv}. DIRECTION: Bottom in wave {iv}.   DETAILS: Looking for a triangle in wave {iv} of 3 as we have found resistance on TL2 at 200$.     TXN Elliott Wave Analysis Trading Lounge 4Hr Chart, Texas Instruments Inc., ( TXN) 4Hr Chart TXN Elliott Wave Technical Analysis FUNCTION: Counter Trend MODE: Corrective STRUCTURE: Triangle POSITION: Wave (e) of {iv}. DIRECTION: Bottom in (e).   DETAILS: Looking for wave (e) to be near completion to then resume higher and find support on top of 200$.   Welcome to our latest Elliott Wave analysis for Texas Instruments Inc. (TXN). This analysis provides an in-depth look at TXN's price movements using the Elliott Wave Theory, helping traders identify potential opportunities based on current trends and market structure. We will cover insights from both the daily and 4-hour charts to offer a comprehensive perspective on TXN's market behavior.   * TXN Elliott Wave Technical Analysis – Daily Chart* In our Elliott Wave analysis of Texas Instruments Inc. (TXN), we observe a counter-trend corrective pattern characterized by a triangle structure. TXN is currently positioned in wave {iv} of 3, suggesting a bottoming process in wave {iv}. The recent price action indicates that TXN has encountered resistance around the TL2 trendline at $200. This resistance could imply the formation of a triangle in wave {iv}, setting the stage for a potential resumption of the upward trend once the triangle completes. Traders should monitor the $200 level for signs of a breakout or further consolidation within the triangle.   *TXN Elliott Wave Technical Analysis – 4Hr Chart* On the 4-hour chart, TXN is following a counter-trend corrective mode within a triangle structure, specifically in wave (e) of {iv}. The current analysis suggests that wave (e) is nearing completion, which could signal the end of the triangle and the beginning of a move higher. The completion of wave (e) should ideally find support above the $200 level, aligning with the daily chart's indication of a possible upward resumption post-triangle. Traders should watch for the termination of wave (e) and the subsequent price action to confirm a bullish continuation.   Technical Analyst : Alessio Barretta Source : Tradinglounge.com get trial here!  
×
×
  • Create New...
us