European and US futures are trading higher as traders brace themselves for the significant economic event, the Fed’s interest rate decision. There is no doubt that there is a lot of noise in the market concerning today’s event, and the majority believe that the Fed will increase the interest rate by 50 basis points. However, market players aren’t looking at the Fed’s interest rate decision; they will also be paying close attention to the Fed’s Chairman’s commentary and his views on controlling inflation.
Traders anticipate a 50-basis interest rate hike from the Federal Reserve’s Chairman as he has recently communicated his desire. Any sort of deviation from this is likely to spur immense volatility in the market, and this is because anything that is lower than 50 basis points would send a signal that the Fed isn’t that hawkish. And anything above 50 basis points is likely to trigger more anxiousness among traders that the Fed is overly hawkish, and this sort of aggressive monetary policy could lead to a monetary policy mistake. In addition to this, there is also a matter of attacking the balance sheet, and traders will be looking for more details on that. It is also anticipated that the Fed may begin to work on reducing the size of its balance sheet imminently as well.
It is crucial to keep in mind that we do have the US NFP number at the end of this week. Recent labour data is showing a more optimistic picture. Some speculators may take the Fed’s commentary out of proportion and begin considering 75 basis points of tightening in June. We believe that would be premature, given early indications that inflation in the US may have peaked.
Our best-case scenario going into today’s meeting is that the FOMC may raise rates by a half-point in May and present a detailed plan to reduce the Fed balance sheet, which is expected to begin soon. Powell will avoid definitive guidance about the size of future hikes as policymakers assess how the runoff affects the economy in the coming months.
Stocks To Watch
In terms of stocks, the Twitter stock will be an interesting one today as investors will pay close attention to the company’s stock price today. The volatility in the stock price will mainly be on the back of news that Elon Musk said that once the transaction is complete, he will look to retake Twitter public. But before that, he will make Twitter the best, unbiased, and most trusted platform in the world. He will look to do an IPO in as little as three years.
Airbnb’s stock price will also be interesting today as the company reported a healthy quarter yesterday. Airbnb reported strong quarterly numbers, meaning consumers are ready to spend on their holidays which shows a sign of confidence.
Lyft’s stock price came under pressure in post-market trading hours, and it is likely to remain that way today as well as the company failed to impress with its quarterly results. The concern among investors is that the planned increase in drivers’ incentives may have dented their ability to produce healthy margins.
The precious metal has paused its dramatic plunge in its price, and since yesterday the price is only grinding to the downside. There are only two events that matter the most for gold traders: the Fed meeting taking place today and the US NFP on Friday. The gold price has become highly sensitive to the dollar index and less susceptible to today’s geopolitical tensions. A 50 basis points interest rate is very much priced into the gold price, and any element of surprise on this matter and the Fed’s view of controlling inflation will influence the precious metal’s price.
In terms of the technical price action, there is no doubt that the gold price is oversold, and this can be seen by looking at the RSI indicator, which is trading near the over the region.
Oil prices are in the recovery mode as investors eye the US crude oil inventory data, likely to signal a tighter supply. Traders are also monitoring the potential of possible sanctions on Russian oil by the EU, which could be announced this week. The EU is determined to punish Russia for its actions in Ukraine. Still, the fear among traders is that the region may be underestimating many factors that could hurt the region’s growth.