- The Federal Reserve Chairman advises “we are not in a hurry to cut rates” and increases his hawkish tone.
- Investors’ risk appetite takes a slight hit as Israel launches its ground invasion of certain Lebanese positions.
- The US Dollar Index rises to test the upper level of the recent price range. Fed comments and geo-political tensions support the US Dollar.
- Economists advise the greatest risk to the global economy is the Middle East and Ukraine conflict.
Dow Jones – No Hurry For The Federal Reserve!
The Dow Jones primarily saw negative price movement on Wednesday, but saw a large surge in buyers 2 hours before the trading session closed. This was largely due to geopolitical tensions and no new developments prompting investors to continue buying at such high prices. However, some positive news did come from the Federal Reserve Chairman, Jerome Powells, in his speech yesterday evening.
The Fed Chairman advises the committee “are not in a hurry to cut rates” and increases his hawkish tone. According to Mr Powells the market should not look too much into the fact that they cut interest rates by 0.50% and that this should not be a guide for future rate cuts. As a result of this, the Chicago exchange changed its guidance for the future path of the monetary policy. Previously, the Chicago exchange rated the chances of a 25-basis point rate cut as a 41% likelihood. This has now risen to 62%.
A smaller rate cut would be negative for stocks, but only if the market buys into the guidance being provided. A positive note was the Federal Reserve’s statement that the US economy is “solid” and shows no signs of recession. In regards to the economy, investors will be closely watching the economic data later today, tomorrow’s ADP NFP Employment Change and the official NFP Change on Friday.
This afternoon the market will be monitoring the JOLTS Job Openings and ISM Manufacturing PMI. A figure slightly higher than that expected could be positive for the Dow Jones as it would support a stable economy but still prompt more rate cuts. Analysts expect the job vacancies to fall from 7.67 to 7.64 million and the Manufacturing PMI to rise to 47.6.
Though economists advise the greatest risk to the stock market and the economy is not necessarily the monetary policy or being too restrictive. Economists advise the greatest risk to the global economy is the Middle East and Ukraine conflict. Currently this seems to continue escalation and if it turns into a full regional conflict, it would be considered serious for all US indices. However, as it stands the VIX index continues to trade lower this morning (-0.76%) and global indices are seeing modest gains. Therefore, we have not yet received a clear indication that the market risk appetite is about to fall.
On a medium-term timeframe, such as the 30-Minute Chart, the price is trading above the 250-Bar SMA and trading slightly higher than the VWAP. In addition to this, momentum is slightly improving as we edge closer to the European open. If the price breaks above the $42,379.30 level, traders may consider buy signals due to the breakout. This would also bring the price closer to the Fibonacci breakout level at $42,443.30. However, if the price falls below $42,320.31, investors may consider a short-term sell signal. For a buy signal, investors would also ideally like to see at least 65% of the Dow Jones’ components to be trading higher.
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Michalis Efthymiou
Market Analyst
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