Risk sentiment rises after less hawkish Fed minutes – Daily Market Brief, November 24, 2022

Stocks rise, and the USD falls after the minutes of the November Fed meeting showed policymakers support a slower pace to rate hikes. US stock markets are closed today for the Thanksgiving holiday.

·         GBP/USD rises to a 3-month high with BoE speakers in focus

·         EUR/USD trades at a weekly high ahead of German IFO business sentiment & ECB minutes

·         Oil steadies after steep declines as the G7 discusses a $65 – $75 price cap for Russian oil

At the November FOMC meeting, the Fed raised interest rates by 75 basis points. The accompanying statement had a less hawkish tone. However, in the press conference following the meeting, Federal Reserve Chair Jerome Powell sounded more hawkish, raising expectations for a higher terminal rate.

The November Federal Reserve meeting minutes were more aligned with the statement, showing that the US central bank considers that the time is approaching to slow the pace of interest rate hikes. Policymakers are concerned about the lag time between raising interest rates and the impact on the real economy.

The market has reacted in a risk-on manner to the less hawkish minutes, with US equities gaining ground and the US dollar falling against its major peers.

The same risk-on mood is set to continue over into Europe, with stocks set to open higher. The CAC and the DAX are pointing to gains of 0.1% on the open. The FTSE is set to underperform its peers, with a modest loss on the open, weighed down by a strong pound and by mining stocks as COVID in China remains a concern.

GBP/USD

GBP/USD is rising for a third straight day and trades at a 3-month high, although there are questions over how much higher the pound can rise given the dire economic outlook. The pound is capitalizing on the weaker USD despite PMI data showing the economic activity in the UK contracted for a fourth consecutive month in December. News orders fell at the fastest pace in two years, pointing to a deep recession. The Office of Budget Responsibility forecasts that the UK will contract 1.4% across 2023. Today BoE speakers are likely to influence the pair and could provide clues as to the future path for rate hikes.

Looking ahead

The European economic calendar sees the release of the German IFO business sentiment data, which is expected to rise modestly to 85, up from 84.5. By historic terms, this is still a depressed reading indicating that a recession is coming. Still, the DAX remains buoyant, hovering around a 5-month high.

The minutes of the latest ECB meeting are also due to be released and could shed some light on whether the central bank is looking to slow the pace of rate hikes to 50 basis points in December from a previous 75 bps.

EUR/USD trades above 1.04 at the time of writing, a weekly high, thanks in part to the weaker USD.

Oil

Oil prices are stabilising after steep declines on Wednesday when oil recorded its largest daily decline in two months as the G7 consider capping Russian oil prices at $65-$75 per barrel. Discussions surrounding the level of the oil price cap will continue today. Weak US data, and rising COVID cases in China, add to the deteriorating demand outlook for oil. US gasoline inventories grew by more than expected, highlighting slowing demand. Today the oil markets could be quiet owing to the US Thanksgiving Holiday. A weaker USD after the minutes from the latest Fed meeting is helping to prop up the price.

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.

Sources: Bloomberg, CNBC, Reuters

Original article provided by Trading Writers

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