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Dollar slides as Fed hikes rates but pulls guidance – Daily Market Brief, July 28, 2022

The US dollar dropped, and the Nasdaq jumped after the Fed hiked rates by 75 bps but pulled back on further rate hike guarantees. US GDP data is up next. Can it help the USD rebound?

·         German inflation is set to fall to 8.1%, EUR/USD and the DAX are rising

·         Meta falls after missing on both top and bottom line and after giving weak forward guidance

·         Barclays sees H1 profits slump on conduct charges from US trading error

Broadly upbeat earnings helped Europe close higher on Wednesday. Meanwhile, the three main indices on Wall Street soared higher following encouraging results from big tech and a less hawkish stance from Federal Reserve Chair Jerome Powell.

The Federal Reserve, as expected, hiked interest rates by 75 basis points, taking the benchmark rate to 2.25 -2.5% the level which policymakers consider to be the neutral rate. However, where the Fed goes from here is less clear.

Jerome Powell noted that the economy was showing signs of weakening with softer spending and production data. He also added that inflation was still far too high. Amid rising economic uncertainty, Powell said that future rate hiking decisions will be made on a meeting-by-meeting basis, effectively withdrawing guidance. Given the market’s reaction of surging equities and a falling USD, the market has concluded that the Fed will slow down the rate at which it will hike rates at upcoming meetings.

The Nasdaq closed 4% higher, and the Japanese yen saw the biggest boost against the USD. USD/JPY trades almost 1% lower at a three-week low.

German inflation

Wall Street’s strong finish is translating into a positive start expected in Europe. On the economic calendar, German inflation will be under the spotlight, with investors searching for signs that peak inflation has passed. Inflation in the eurozone’s largest economy is expected to slip to 8.1% YoY in July, down from 8.2% in June and 8.7% in May. The third month of falling inflation would certainly be encouraging. However, given the slowing gas supply to Germany and soaring energy bills expected over the coming months, it could be premature to claim the worst is passed.

The DAX is set to rise 0.3% on the open after closing 0.5% higher in the previous session. However, gains could be limited given the dire economic outlook.

EUR/USD has risen back above 1.02, paring losses from earlier in the week.

US GDP

Looking ahead to the US session, US GDP data will be in focus. Jerome Powell said that the US is not currently in a recession. Expectations are for Q2 GDP to rise 0.4% annually after contracting -1.6% in the first three months of the year. Weak economic growth could see investors temper Fed bets further, pulling the USD lower and providing a boost to stocks.

Meta

Facebook owner Meta is falling pre-market after missing both earnings and revenue forecasts. The social media platform also gave a troubling outlook for the coming quarter, with weak advertising demand expected to continue. Meta reported EPS of $2.46, below the $2.59 forecast. Meanwhile, revenue came in at $28.82 billion, short of the $28.94 billion forecast.

Stocking with tech stocks, Apple and Amazon are due to report after the closing bell in the US.

Barclays

In the UK, bank results are in focus, with Barclays reporting a 48% decline in Q2 profits after taking a £1.9 billion hit from provisions relating to a costly trading error in the US. Barclays reported a pre-tax profit of £3.7 billion, down from £4.9 billion in the same period a year earlier.

Disclaimer: This article is not investment advice or an investment recommendation and should not be considered as such. The information above is not an invitation to trade and it does not guarantee or predict future performance. The investor is solely responsible for the risk of their decisions. The analysis and commentary presented do not include any consideration of your personal investment objectives, financial circumstances, or needs.

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