Asian Pacific markets surge

US stock index futures were stronger across the board in early trade on Wednesday. All the majors ended yesterday’s session in positive territory, although they peaked early on and pulled back from their best levels throughout the latter half of the session. But buying interest reemerged overnight, even as the war across the Middle East continues to escalate, and as investors await the Federal Reserve’s latest policy decision early this evening.

Crude oil was down a touch this morning, even as the Strait of Hormuz remains blocked by Iran, thereby cutting off around a fifth of the world’s supply of oil and liquefied natural gas.

Meanwhile, markets ascribe a 1% chance that the Federal Reserve’s FOMC will make any change to the Fed Funds rate later today. But of far greater importance will be the latest quarterly update of the FOMC’s Summary of Economic Projections. This is where all FOMC members give their forecasts for inflation, economic growth, unemployment and interest rates for the rest of this year, and beyond.

Back in December, the FOMC’s ‘Dot Plot’ indicated that members expected just one 25 basis point rate cut this year. Investors didn’t believe them, and until about a month ago, were pricing in two cuts, with the first coming in June. But following some hotter-than-expected inflation data, plus some hawkish comments from Fed members, that prediction began to shift.

Now, with the jump in energy prices due to the war, the markets are pricing in just one cut this year, and no sooner than December. Could they be forced to shift again? After all, some Fed members have suggested that their next move may need to be a hike to get a grip on inflation, even as the US labour market continues to deteriorate.

Tonight’s announcement could prove to be a market-moving event, even without a move on rates.

Meanwhile, the S&P 500 continues to bump up against some mild resistance just above 6,750. If it manages to break above here, then a swift move to 6,800 can’t be ruled out. But a rejection at either level could see a sharp drop back to a retest of the lows hit earlier this month, below 6,600.

Source: TN Trader

European stock indices stormed higher on Wednesday morning, taking their cue from a rally in US futures along with the positive close across Asian Pacific indices. Most sectors traded in positive territory, although energy stocks lagged slightly as oil prices eased from recent highs.

This drop in oil came despite intensifying attacks on energy infrastructure in the Middle East. An increase in US crude inventories, as measured by the American Petroleum Institute, helped to offset some of the geopolitical risk premia. The US Energy Information Administration will announce its own numbers later today.

But aside from inventories, the Strait of Hormuz remains effectively blocked, thereby cutting global supply. President Trump’s call on European allies to play a part in reopening the Strait has been met with embarrassed silence. Investor focus will now turn briefly to the Federal Reserve, which is set to announce its policy decision later in the day.

Investors will study the FOMC’s latest Summary of Economic Projections, particularly the infamous ‘Dot Plot’ for any evidence of increased hawkishness. They will also parse comments from Fed Chair Jerome Powell during his next-to-last press conference, ahead of his retirement in May.

Looking at the daily MACDs across several European indices, all are bouncing off oversold levels from earlier in the month. There could be more upside to come. But traders will be watching for any sign that the current rally is running out of puff.

Source: TN Trader

It was another quiet and uneventful overnight session in FX, and that listlessness has drifted through to this morning’s session. The US dollar was steady in European trade with the cash Dollar Index little changed from the previous session, and hovering just beneath 99.50.

Investors were sitting on their hands, awaiting clarity from the Federal Reserve ahead of its rate decision and statement later this evening. Ahead of that, there’s the latest update on US wholesale inflation. The dollar has found support from safe-haven demand amid escalating geopolitical tensions and rising inflation concerns linked to higher oil prices.

Expectations for monetary policy have shifted significantly, with markets now pricing in limited rate cuts this year. Inflation was picking up, even before the surge in energy prices earlier this month.

Meanwhile, the Japanese yen remains weak. The USD/JPY continues to trade close to levels which had previously triggered intervention to support the yen. The euro remains under pressure ahead of the European Central Bank decision tomorrow. Yet the EUR/USD has rallied off recent lows and is now back above support/resistance around 1.1500.

Source: TN Trader

Gold was weaker this morning and struggling to find purchase above $5,000. In fact, a burst of selling in mid-morning European trade saw gold drop below $4,960 to hit its lowest level in a month.

Gold has made a valiant effort to hold within a relatively tight range. But following some failed attempts to break out above the resistance at $5,200 last week, it now looks as if the bears may be getting the upper hand. Much now depends on whether buyers come in to support gold if prices fall further.

Source: TN Trader

The trouble for the bulls, as things currently stand, is that there’s no appetite for gold as a ‘flight to safety’ trade. No doubt many would-be purchasers have been put off by gold’s plunge from record highs at the end of January.

At the same time, the US dollar experienced heavy demand at the start of the US/Israeli attack on Iran. That has put even more pressure on the gold price, as have expectations that the Federal Reserve will keep rates higher for longer. So, unless or until this dynamic changes, gold will face a headwind rather than the tailwinds it benefited from over the last few years.

Crude oil prices edged lower on Wednesday despite intensifying geopolitical risks, as rising US crude inventories helped offset supply concerns to some extent. The pullback was relatively modest, and front-month WTI continues to trade within a relatively narrow range of $90-$100 per barrel.

Source: TN Trader

Meanwhile, attacks on energy infrastructure across the Middle East continue to escalate. The Strait of Hormuz remains effectively blocked, so around one fifth of global supply has been cut off.

The US military has upped its bombing campaign along the Iranian coast facing the Strait. This has raised hopes that it may soon be open to shipping. One could argue that oil prices, both WTI and Brent, are relatively subdued given the situation across the Middle East.

It’s probably fair to say that prices reflect the expectation that the war will be over, and the Strait of Hormuz reopened, in no more than a month’s time. But if there is scant evidence of this by the end of this month, then a repricing could be in order.

Cryptocurrencies continue to show resilience despite ongoing geopolitical uncertainty. Bitcoin was trading around $74,000 in early trade this morning, holding within an area that has behaved as both support and resistance previously. Recent price action suggests that Bitcoin is continuing to consolidate in what appears to be a bottoming structure following the 40% drop from October’s all-time high.

Bitcoin’s daily MACD continues to indicate that momentum is to the upside as it has pushed off oversold levels and has just crossed above the neutral line. Key levels remain in focus, with $76,000 acting as intermediate resistance below the more significant $80,000 level. Meanwhile, $71,000 is near-term support, and a break under here increases the possibility of a retest of the February low of $60,000.

Market volatility has moderated significantly from the levels hit nine days ago. The CBOE Volatility Index for March fell below 22.00 after spiking above 30.00 early last week.  While this suggests calmer conditions compared to peak stress levels, volatility remains elevated by historical standards.

Ongoing geopolitical developments, fluctuating oil prices and uncertainty around central bank policy continue to drive rapid shifts in market sentiment. Traders remain highly reactive to headlines, particularly those related to the Middle East conflict.

All eyes are now on the Federal Reserve, with the policy decision, the quarterly Summary of Projections and Jerome Powell’s press conference being the primary market catalysts. While no change in interest rates is anticipated, the updated ‘Dot Plot’ and forward guidance will shape expectations for the path of monetary policy.