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    • Dollar and VIX Slump After Fed Hike, Watch EURUSD and Doubt Trends   The Federal Reserve hiked its benchmark rate another 25 basis points and Powell held the door open for further hikes, but neither risk assets nor the Dollar took the group for its word. Scrutinize the progress on trends like that from EURUSD with event risk like the ECB and unresolved themes like recession ahead.        
    • Feb 1, 2023 | DailyFX John Kicklighter, Contributor FOMC, Dollar, S&P 500, ECB and BOE Rate Decision Talking Points: The Federal Reserve hiked its benchmark rate 25bps to a range of 4.50 – 4.75 percent The US benchmark is higher than its principal global counterparts, but that advantage has been previously priced in In the policy statement that accompanied the decision, the group said ‘anticipates that ongoing increases…will be appropriate’   The Federal Open Market Committee (FOMC) announced a 25 basis point increase in its benchmark rate range to 4.50 – 4.75 percent. The increase was a further step down in pace from the 50 bp increase in December and the 75 bp hike in November – following a stretch of four consecutive such heavy hikes. The increase in the benchmark rate was in-line with the consensus forecast from economists and the market itself via Fed Fund futures, so it was perhaps not a surprise that the initial market response centered on volatility without a clear view on direction. With the market’s looking for clues to the Federal Reserve’s ultimate top for its benchmark lending rate, the monetary policy report offered some conflicting signals. On the one hand, the group mentioned that inflation had ‘eased somewhat but remains elevated’ – removing the references to volatile energy and food components. The maintenance of the remark that the group “anticipates that ongoing increases in the target range will be appropriate in order to…return inflation to 2 percent” is an unexpected hawkish perspective. Some of the highlights from Fed Chairman Jerome Powell’s press conference following the rate decision include: Hawkish Overtone The discussion is around ‘a couple more rate hikes to get to appropriately restrictive stance’ FOMC will make decision on a meeting-by-meeting basis Full effects of the rapid tightening cycle has yet to be fully felt Suggests they are discussing a couple hikes to get to more restrictive stance Taking pauses between meetings was not discussed If the economy performs as expected, doesn’t expect a rate cut in 2023 Dovish Overtone Says the Fed will need to stay restrictive for some time Will need more evidence of inflation pressures weakening to be confident it is under control Will likely need to maintain a restrictive policy stance for some time Encouraging to see the ‘deflationary process has started’   FOMC Scenario Table   Table Made by John Kicklighter   Looking to the intraday chart of the active S&P 500 emini futures contract, the initial response to the FOMC hike was a drop which aligns to risk aversion that tends to draw on the market’s speculative connection to monetary policy as a backstop for risk exposure. However, that decline was sharply reversed without hitting any critical technical levels as investors looking for greater clarification on the path forward. Ultimately, through both hawkish and dovish remarks from the head of the Federal Reserve, the equity market drew upon the more supportive remarks pushing the S&P 500 to its highest levels since September above 4,100.   Chart of S&P 500 Emini Futures with Volume (5-Minute)   Chart Created on Tradingview Platform   With a connection to risk trends as a safe haven as well as its relative potential via yield differentials, the US Dollar would dive during Chairman Powell’s remarks. Ultimately, the US yield is a premium to most counterparts and the Greenback has reversed more than half of its run up through 2021-2022 – rooted heavily in the anticipation of that yield advantage – yet that doesn’t seem to be enough of a rebalancing for the US currency.   Chart of the DXY Dollar Index (5-Minute)   Chart Created on Tradingview Platform   While the Federal Reserve’s and market’s outlook for the terminal rate and the path through the end of 2023, the US benchmark is still seen to sport a premium in the rate differential against most its major counterparts – and specifically the most liquid counterparts. Fed Fund futures are pricing in a 4.90 percent rate through the June contract, which is a premium to the three largest counterparts: ECB (3.17), the BOE (4.39) and of course the BOJ (0.11).   Table of Relative Monetary Policy Standing   Table Made by John Kicklighter   Taking a bigger picture look at monetary policy rates across the globe, it is important to remember where the Fed sits in the global spectrum. It is a leader of an exceptional tightening regime that has thus far had a fairly measured impact on the financial market: below represented by the S&P 500. If the tighter conditions lead to a recession, the second round effect on investor confidence should not be missed as a by-product of monetary policy.   Table of Relative Monetary Policy Standing   Table Made by John Kicklighter
    • ASX 200 afternoon report: 2nd of February 2023 ASX 200 market update as of 2nd of February 2023, 3.00 pm AEDT.   Source: Bloomberg   Indices Shares Australian Securities Exchange ASX S&P/ASX 200 Share  Tony Sycamore | Market Analyst, Australia | Publication date: Thursday 02 February 2023  The ASX 200 trades 12 points (0.16%) higher at 7514 at 3.00 pm Sydney time. In a carbon copy of the price action viewed in the prior two sessions, the ASX 200 this morning traded to a fresh nine-month high before sellers again emerged to take the shine off early gains. The disappointing performance comes despite a positive lead from Wall Street after Fed Chair Powell deviated from his hawkish script during this morning’s FOMC meeting, noting that the “disinflationary process has begun” and that it was “certainly possible” the Fed will keep its benchmark rate below 5%. The persistent selling in the local market is likely a sizeable institutional player getting out of the Australian market in favour of global stock markets with a higher percentage of growth stocks than our value-laden index. Growth stocks are better positioned to benefit from an imminent Fed pause. Or possibly on concerns the RBA still has a lot more work to do to break the back of stubborn inflation and speculation increases of a larger-than-expected RBA rate hike next week. More so after today’s strong rebound in building approvals which surged by 18.5% vs expectations of +1%. IT sector With those thoughts in mind, it’s no surprise that tech stocks have been the standout today. Megaport added 9.23% to $6.09 Sezzle added 8% to $0.67c Life360 added 7.93% Wisetech Global added 7.5% to $63.99. Consumer Discretionary stocks Consumer Discretionary stocks have also gained today. Aristocrat Leisure added 3.2% to $35.38 Flight Centre continued to gain altitude as it added 2.45% to $17.53 Kogan group added 1.98% to $4.63 Super Retail Group added 1.37% to $12.61. Financial sector The big banks have struggled with talk of a larger-than-expected RBA rate hike next week. NAB fell 0.5% to $31.58 Westpac fell 0.34% to $23.52 ANZ fell 0.28% to $25.20 CBA is trading flat on the day at $110.12. Mining sector The big miners have fallen as the rotation from value to growth stocks gains traction. Rio Tinto fell 2.22% to $125.58 Mineral Resources fell 1.75% to $88.67 Whitehaven fell 1.39% to $8.16 BHP fell 1.37% to $48.89. Technical analysis Over the past seven sessions, there has been a notable loss of upside momentum in the ASX 200. Additionally, the ASX 200 is overbought, and for the Elliott Wave followers, there is a five-wave advance from the October 6411 low, which warns of a possible pullback. We continue to favour trimming longs ahead of the bull market 7632 high and looking to either buy a sustained break of the 7632 high or a pullback into the 7200/7000 support area. ASX 200 daily chart   Source: TradingView Take your position on over 13,000 local and international shares via CFDs or share trading – and trade it all seamlessly from the one account. Learn more about share CFDs or shares trading with us, or open an account to get started today.
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