Stocks mixed, dollar lower after Powell’s press conference

Headlines

* Fed cites lack of progress on inflation, but rate hikes dismissed

* US data disappoints with ISM manufacturing below 50

* Dollar and yields dips as Fed says will ease back on balance sheet tightening

* Gold jumps after FOMC stands pat on rates with mildly dovish bias

FX: USD sold-off as the Fed left its policy rate unchanged as expected but said rate hikes remain unlikely. Rate cuts remain on the cards for this year. However, inflation progress and labour market softness are needed. Prices were bid before the FOMC meeting hitting a high and resistance just below 106.50. The DXY closed just off the low at 105.43.

EUR initially fell to a low of 1.0649 before dollar selling saw prices close above 1.07. There was little data or ECB speak yesterday. Yield differentials between Europe and the US remain near recent lows though they narrowed a touch after the Fed meeting.

GBP picked up but not quite as far as the 200-day SMA at 1.2551. UK housing data saw a bigger decline than expected, though the manufacturing PMI was revised higher.

USD/JPY fell aggressively late in the session and briefly tested the 153 level after collapsing from above 157. There was much speculation of more intervention though the major has moved off the worst levels. We find it quite something that the MoF is intervening during a week with arguably the two biggest risk events on the calendar, (FOMC and NFP) aside from the CPI data.

AUD moved higher to trade around the 50-day and 200-day SMAs. USD/CAD advanced Tuesday on the softer GDP figures. But it’s still a coin toss for a June BoC rate cut.

Stocks: US equities finished mixed in a choppy session. The broad-based benchmark S&P 500 finished 0.34% lower at 5018. The tech-laden Nasdaq 100 lost 0.70% to close at 17,318. The Dow Jones outperformed, up 0.23% to settle at 37,903. Stocks unwound the overall dovish reaction to the Fed with a big reversal into the close. Amazon gained 2.5% on strong Q1 results with EPS and revenue, plus AWS sales all beating estimates. However, Q2 guidance was relatively light. AMD plunged 9% on disappointing Q2 revenue guidance and chip sales forecast.

Asian Stocks: APAC futures are in the red. Asian stocks traded lower on the poor handover from Wall Street. The Employment Cost Index data was bearish for risk assets with ongoing labour market inflation. The ASX 200 was pressured due to gold losses hitting miners. The Nikkei 225 fell on the open, but the downside was capped by the weaker yen.

Gold found buyers after the Fed meeting. They pushed prices higher to $2328 before a shallow pullback. This mirrored price action in yields. We are back to the minor Fib level (23.6%) of this year’s rally at $2326.

Day Ahead – Post-FOMC reaction

The statement language was tweaked in a very mild dovish way. The typical reaction (upside in stocks, bonds, gold and downside in the Dollar) to this extended during Fed Chair Powell’s press conference as he noted it was unlikely the next move would be a hike. The Fed is focused on how long to keep policy at its current level. But Powell did admit several times that the recent inflation data does not boost the Fed’s confidence in it returning to 2%. That said, he believes that policy is restrictive enough for that to occur. Nonetheless, after the dust settled, stocks then saw a large reversal heading into the close.

USD was lower in the aftermath of the FOMC rate decision and accompanying dovish Powell press conference. The greenback was further pressured late in the session as USD/JPY dropped aggressively amid suspected FX intervention. Market pricing changed modestly with 35bps of Fed rate cuts priced in by December. This was in the lows 30s before the meeting.  A hike being “unlikely” was a relief to many who had positioned for a more hawkish bias. NFP is next up, a key data point as policymakers are highly data dependent. It comes after JOLTS figures showed more signs of easing labour market conditions.

Chart of the Day – Apple in medium-term downtrend

Apple report its Q2 earnings after the US closing bell. Revenues of $90.6bn are expected, which would be a year-on-year decline of 4.5%. The prior quarter saw revenues beat estimates, rising 2%. The foucs will be on iPhone revenues which are forecast to be “similar” to last year. Market will focus on sales in China, Apple’s second largest iPhone market and the sales outlook. Any commentary on AI will also be crucial. This comes after  CEO Cook’s said on the previous earnings call that AI initiatives were coming later in the year.

The iconic tech giant is the second worst performing Mag 7 stock this year after Tesla. The EV-maker rebound after its reuslts, thouhgh missed on the bottom and top lines. Prices have fallen from the December high just below $200. Sellers pushed prices below key long-term support from the October 2023 low at $165.67. A rebound took prices above the 50-day SMA at $172.36 but sellers emerged here. Currently, we are trading around a major long-term Fib level at $170.87.