The Fed is simply running the town, which is the message traders have taken from the fresh FOMC minutes. The fact that minutes have confirmed that the Fed is ready to slow down the pace of interest rates is good news, as market players have been abundantly worried about their monetary policy. We are using the term hawkish slowdown because traders must keep in mind that the Fed is still going to increase the interest rate, and only the difference is that from now on, we are not going to see a massive interest rate hike. What we are likely to see from the Fed during their next meeting could be anything between 25 to 50 basis points. The 50 basis points number is still a lot, but it certainly is less than 75 basis or even a full percentage point which many feared in the past.
The Fed’s new monetary policy stance is good for the US equity market. The fact that it seems like we are near enough the top of reaching the interest rate peak, the coming months and the year could be good for the US stock market as bulls are likely to feel more confident. However, it is important to continue to pay close attention to the US economic data and not get carried away with the Fed’s monetary policy only. Yesterday, we saw another surge in the US Weekly Jobless Claims, which is a worrying factor. This could be a crystallization of the message, which was loud and clear during the current quarter when the US corporates started to announce job cuts or freezing head counts. Now, if unemployment continues to tick higher, all bets will be off as the manufacturing data in the US has already started to show a contraction. A cocktail of shrinking manufacturing data and soaring unemployment numbers could leave a heavily bitter taste, and traders could quickly shift their position from bullish to bearish regarding the US stock market.
On the inflation front, Fed members have shown some confidence in the current direction of inflation. However, the fact that committee members have recognized that there is a greater risk to the economy if they continue with their current pace is another positive sign for the risk-on rally.
Moving forward from here, the trading action is likely to be positive for the US stock market, but the volume in the market could be soft as most traders aren’t going to be present due to the Black Friday holiday. Retail stocks will again be a primary focus among traders and investors as consumers tend to take advantage of special offers introduced during this period. Because disposable income is shrinking due to the cost of living crisis, consumers are more likely to stretch their dollar and use the deals introduced during this period but spend on essentials rather than anything else.
Oil prices continue to show higher volatility on the back of a potential price cap on Russian oil by G7 nations. In addition, traders are also concerned about the built-up in the US inventory data, which has suggested to some extent that there is more than ample supply. Remember, the fact oil prices are trading above the $70 and $80 price marks makes the oil drilling business highly lucrative for US oil drillers. However, because economic data shows weakness in the US, such as the US manufacturing PMI, the odds are ever-increasing that we could see supply outpacing demand. In addition, OPEC’s oil supply will likely remain a wild card until their next meeting and could keep oil prices volatile.
Gold prices continue to build on yesterday’s momentum, and the price action is looking positive today. The hawkish slowdown tone has taken the wind out o the dollar rally, supporting gold prices. In addition, gold traders are also keeping a close on the general sentiment in the market. As long as more traders are willing to back riskier assets, we will see less shine for the yellow metal.
In terms of the price action, it is the 200-day SMA that is providing a more challenging time for the gold prices as the prices have failed recently to break above this price point which shows weakness in the current bull run.