General Market Analysis 23/03/23

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Stocks Hit After Mixed Fed Messages

US stock markets closed the day well in the red as mixed messages from the Fed led to volatile moves across the market. The Dow fell 1.63%, the S&P 1.64%, and the Nasdaq 1.6% as markets digested the latest update from the FOMC. Currency markets experienced extreme spikes before the dollar eventually settled slightly lower on the day in line with US treasury yields, the 2-year benchmark now sitting at 3.95% against the previous days’ close at 4.17%. Commodities generally close the session better off as the weaker dollar plays precedence.

Fed Hikes 25 bps then Hedges their Bets

The much-anticipated Fed meeting has come and gone, and the market still has much to digest after a 25bps hike and subsequent statement and press conference. As expected, we got a 25bps hike but crucially the Fed pulled the line that ‘ongoing increases in rates will likely be appropriate’ from its statement and this was received well by the market, and risk trades took off. However, in a later press conference, Jerome Powell advised that the Fed would do enough to bring inflation back to its 2% target and will raise rates if needed, swiftly turning back from a dove to a hawk in the eyes of the market. Essentially, we have the Fed now sitting on the fence waiting to see if we have further market turmoil which will lead to a more dovish stance from them, or if the last couple of weeks turns out to be isolated incidents, they will still have further rate hikes in their arsenal.

More Central Bank Action Today

Traders will only have a couple of sessions to fully digest the FOMC’s latest announcements before they are hit with more central bank action and more rate hikes if the Swiss National Bank and Bank of England are in line with market expectations. Although the Fed by far outweighs the SNB and the ‘Old Lady’ in terms of global market influence, investors will be closely monitoring the impact of both central bank announcements. The SNB particularly after its intervention to rescue Credit Suisse just last week and then the Bank of England after another strong CPI print yesterday – the y/y number coming in at 10.4%, 0.5% higher than expected. The market has priced in a 50bps hike in Switzerland and a 25bps increase in the UK.