The Fed did what they were supposed to do yesterday, increasing the interest rate by 75 basis points once again. The rate hike was approved unanimously. Remember, in June, one of the Fed members dissented and advocated a slower pace of interest rate hike with 50 basis points rather than 75 basis points.
The fact is the message is clear from Fed now, and that is they want to bring the inflation lower no what the cost is. Although, they are trying their best to avoid a recession.
Jerome Powell, like Janet Yellen and President Biden, said that the US economy isn’t in a recession. This is purely based on the new definition of recession which doesn’t define a recession as two consistent quarters of negative growth.
The speech by the Fed Chairman has supported the market sentiment for two reasons. Firstly, market players like that the Fed is keeping a close eye on the economic condition while increasing the interest rates. Secondly, and most importantly, the interest rate hike’s future path may not be as steep as it has been. It seems like inflation has peaked in the US, which means that the Fed will have to slow down the roll on hiking the future interest rate.
Any interest rate hike’s future message also needs consistency and coherent behaviour among the Fed members. So far, market players do not expect the next interest rate hike, which will be in September, to be 75 basis points. Traders expect the next interest rate hike to be around 50 basis points, and the one after that will be approximately 25 basis points. The critical point is that investors and traders would like to see the Fed assess the situation more carefully and not set the monetary policy on autopilot. Putting anything on autopilot could be extremely dangerous for the US economy.
Gold and Bitcoin
Although we see riskier assets such as equity futures finding more bids today and traders supporting the sentiment and picking up the momentum where they left off last night, Bitcoin and gold prices are also increasing. This is primarily due to the reason that the dollar index has weakened, as we discussed previously.
Bitcoin has been under pressure due to the Fed’s monetary policy, and that is, the Fed is increasing the interest rates. But the price action now shows that the dollar strength or weakness matters the most for the bitcoin prices. Because we have seen the dollar index coming off its highs, we now see bitcoin prices moving higher as well. It will be interesting to see if the relationship continues to hold as the Bitcoin price is still not far off from its critical support of 20K.
As of today, BTC and Ethereum prices crossed above the price level of 23K and 1.6K, but the main resistance which will clear the threat of any further downside move is if BTC crosses above the 30K price mark and ETH soars to 2K.
Prices are moving higher on Thursday as traders continue to show their concerns about dwindling supply and an increase in gasoline demand in the US. The US crude inventory data confirmed yesterday that oil stockpiles declined by 4.5 million barrels last week, and the US gasoline demand increased by 8.5% week on week basis.
The green colour for the oil prices is also due to the weakness in the dollar index.
Stocks To Watch
There are several important stocks to watch today. Firstly, the news indicating that Apple is after Lamborghini’s top management to build its electric car increased enthusiasm late last night. Investors have been waiting for an Apple car for a long time, and yesterday’s news has further fuelled those rumours that soon we will see an Apple car on the market.
Ford’s stock is going to be an interesting one today as well as the company reported a smashing quarter last night, and the stock surged in after the market closed. The company hiked dividends, and they are determined to fight off the tough year, which has not only supply chain issues but also consumers who are not willing to spend as much as they used. Ford’s electric car sector did quite well per their earnings report.
Meta shares declined after-market hours trading as the company failed to produce stellar earnings. EPS dropped, and revenue also missed the Wall Street estimates. The active user base was the firm’s only bright spot, and it isn’t enough for traders to support the stock today. Expect higher volatility with significant risk to the downside.