The US Federal Reserve expectedly kept rates unchanged. New Zealand remains in a technical recession. :: InvestMacro

By JustMarkets

As of Wednesday’s stock market close, the Dow Jones Index (US30) was up 1.03%. The S&P 500 Index (US500) added 0.89%. The NASDAQ Technology Index (US100) closed positive 1.25%. The US stocks closed at record highs on Wednesday after the US Federal Reserve left its outlook for interest rate cuts unchanged.

The FOMC left the federal funds rate unchanged at a 23-year high of 5.5% for the fifth consecutive meeting in March 2024, matching market expectations. Policymakers added that they did not believe it would be appropriate to reduce the target range until there is confidence that inflation is moving steadily toward 2%. The median expectations of FOMC members suggest 75 basis points of rate cuts this year. The dot plot also points to three rate cuts in 2025, one fewer than in December, despite a slight upward revision to PCE inflation. However, the sharp upward revision to US GDP forecasts continued to support US equities, reflecting this year’s rally away from the Fed’s restrictive policies. The FOMC also said it will continue to shrink its monthly balance sheet by $95 billion. Fed Chair Powell said it is appropriate to begin easing “at some point this year” and that recent inflation data indicate the Fed was correct to wait before cutting interest rates.

The Bank of Canada’s Board of Governors expects a possible rate cut in 2024 if economic trends match forecasts, but internal disagreements over timing and inflation risks remain. BoC Governor Tiff Macklem remains cautious about an immediate rate adjustment due to concerns about core inflation. The bank forecasts weak growth in the first quarter to gradually pick up to 1% by the end of the year, while inflation is expected to hover around 3% in the first half of 2024, then fall to 2.5% in the second half and eventually return to the 2% target by 2025.

Equity markets in Europe traded flat on Wednesday. Germany’s DAX (DE40) added 0.15%, France’s CAC 40 (FR40) fell by 0.48% yesterday, Spain’s IBEX 35 (ES35) rose by 0.48%, and the UK’s FTSE 100 (UK100) closed negative 0.01%.

ECB President Christine Lagarde joined other European policymakers in calling June a likely month to start discussing ECB rate cuts. However, she cautioned that the ECB would not commit to a predetermined number of rate cuts as the decision depends on incoming data.

WTI crude oil prices fell about 2% to $81 a barrel on Wednesday, moving away from four-month highs reached on Tuesday. Investors locked in some gains after strong oil prices. Meanwhile, EIA data showed that US crude inventories unexpectedly fell by 1.95 million, the largest in two months, as refiners continued to ramp up activity.

The US natural gas (XNG) prices fell below $1.7 per MMBtu, near their lowest monthly level, amid pessimistic demand and high domestic supply. The Freeport LNG export plant in Texas announced that two of its three liquefaction lines will be taken offline before May, delaying a period of low capacity at a key plant. These developments will prevent the US from exporting additional natural gas through the LNG plant, reducing the supply of the commodity for domestic consumption.

Asian markets were predominantly up yesterday. Japan’s Nikkei 225 (JP225) was not trading yesterday, China’s FTSE China A50 (CHA50) was up 0.04% on Wednesday, Hong Kong’s Hang Seng (HK50) added 0.08% on the day, and Australia’s ASX 200 (AU200) was positive 0.10%.

Economists say the Bank of Japan (BoJ) may raise rates amid an improving economic outlook in the coming months. In addition, Japan’s Finance Minister Suzuki said that the government is monitoring currency movements with a “great sense of urgency” after the yen broke through the 151 per dollar mark. In other words, the government is not ruling out currency intervention to support the exchange rate.

New Zealand’s economy contracted 0.3% in the December quarter of 2023 from a year earlier, after contracting 0.6% in the prior period, falling short of market estimates of 0.1% growth. New Zealand’s technical recession persists. Markets have raised expectations of a rate cut by the Reserve Bank of New Zealand (RBNZ), and there is now a 55% chance of such a move in July. A quarter-point cut in the RBNZ rate is also fully forecast for August.

The Australian dollar rose to $0.66, hitting its highest level in a week, helped by stronger-than-expected employment data from the country. The latest data showed that Australian employment rose by 116,500 in February, well above market forecasts that expected a 40,000 increase. The unemployment rate also fell to a five-month low of 3.7% last month, better than market expectations of 4%.

S&P 500 (US500) 5,224.62 +46.11 (+0.89%)

Dow Jones (US30) 39,512.13 +401.37 (+1.03%)

DAX (DE40) 18,015.13 +27.64 (+0.15%)

FTSE 100 (UK100) 7,737.38 −0.92 (−0.01%)

USD Index 103.39 −0.04 (−0.04%)

Important events today:

• – Australia Manufacturing PMI (m/m) at 00:00 (GMT+2);
• – Australia Services PMI (m/m) at 00:00 (GMT+2);
• – Japan Trade Balance (m/m) at 01:50 (GMT+2);
• – Australia Unemployment Rate (m/m) at 02:30 (GMT+2);
• – Japan Manufacturing PMI (m/m) at 02:30 (GMT+2);
• – Japan Services PMI (m/m) at 02:30 (GMT+2);
• – Hong Kong Inflation Rate (m/m) at 10:30 (GMT+2);
• – Switzerland SNB Interest Rate Decision at 10:30 (GMT+2);
• – Switzerland SNB Monetary Policy Assessment at 10:30 (GMT+2);
• – German Manufacturing PMI (m/m) at 10:30 (GMT+2);
• – German Services PMI (m/m) at 10:30 (GMT+2);
• – Switzerland SNB Press Conference at 11:00 (GMT+2);
• – Norway Interest Rate Decision at 11:00 (GMT+2);
• – Eurozone Manufacturing PMI (m/m) at 11:00 (GMT+2);
• – Eurozone Services PMI (m/m) at 11:00 (GMT+2);
• – UK Manufacturing PMI (m/m) at 11:30 (GMT+2);
• – UK Services PMI (m/m) at 11:30 (GMT+2);
• – UK BoE Interest Rate Decision at 14:00 (GMT+2);
• – UK BoE MPC Meeting Minutes at 14:00 (GMT+2);
• – US Initial Jobless Claims (w/w) at 14:30 (GMT+2);
• – US Manufacturing PMI (m/m) at 15:45 (GMT+2);
• – US Services PMI (m/m) at 15:45 (GMT+2);
• – US Existing Home Sales (m/m) at 16:00 (GMT+2);
• – US Natural Gas Storage (w/w) at 16:30 (GMT+2);
• – New Zealand Trade Balance (q/q) at 23:45 (GMT+2).

By JustMarkets

This article reflects a personal opinion and should not be interpreted as an investment advice, and/or offer, and/or a persistent request for carrying out financial transactions, and/or a guarantee, and/or a forecast of future events.