U.S. stocks embrace a dovish take, roar back from post-FOMC lows

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Main U.S. indexes end higher after Fed hikes 25 bps

Tech leads S&P 500 sector gainers; energy sole loser

Dollar, crude fall; gold, bitcoin advance

U.S. 10-Year Treasury yield tumbles to ~3.41%

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U.S. stock indexes surged back from post-FOMC statement lows. The S&P 500 .SPX and Nasdaq .IXIC both closed solidly higher, while the DJI .DJI eked out a very small gain.

Session lows were hit after the Federal Reserve increased interest rates by a quarter of a percentage point and said it expects "ongoing increases" in borrowing costs as it keeps battling high inflation.

But shortly into Fed Chair Powell's press conference, the market seemed to decide he was not being as hawkish as feared. Stocks then reversed higher, with the Nasdaq leading the way. The IXIC, which was down a bit more than 0.7% at the time, ended up 2% on the day.

With the U.S. 10-Year Treasury yield US10YT=RR sliding, chips .SOX and FANGs .NYFANG were especially strong. The NYFANG gained more than 4%, while the SOX ended up more than 5%.

The Fed's policy decision lifted the benchmark overnight interest rate to a range between 4.50% and 4.75%. According to the CME's FedWatch Tool, the probability that the Fed will hike by another 25 basis points at its next FOMC meeting March 21-22 is about 86%. The market sees a 14% chance that the Fed will sit on its hands.

In a quick reaction note, Morgan Stanley economists, led by Ellen Zentner, the chief U.S. economist, wrote:

"For our Fed call of no hike in March, today’s decision is less important than the actual data flow. A payroll print at our forecast (+175k) or below would keep our fed funds forecast path firmly in place, but a stronger print would pose upside risk."

Zentner added "Two more inflation and two more payroll prints leave ample room for the data to shift Fed views on the next step even without any signaling at today’s FOMC."

Here is a snapshot of where markets stood just moments after Wednesday's closing bell:

(Terence Gabriel)



The Federal Reserve raised its target interest rate by a quarter of a percentage point on Wednesday, yet continued to promise "ongoing increases" in borrowing costs as part of its still unresolved battle against inflation.

The main U.S. indexes, which were all red around the time of the release of the FOMC statement, have gyrated since it came out.

The Nasdaq .IXIC, however, has recovered, and is now flat to slightly positive.

Regarding the FOMC action, Ryan Detrick, chief market strategist, at the Carson Group said, "The Fed threw no curve balls, as they did what was widely expected. The door is cracking open to end rate hikes, but they still have a chance for one more rate hike at the next meeting.”

Markets await Fed Chair Powell's press conference at 0230 pm EST.

(Terence Gabriel, Stephen Culp)



The results of the latest FOMC meeting are due at 0200 pm EST. A 25 basis point Fed Funds increase is a near certainty, and according to Mike O'Rourke, chief market strategist at JonesTrading, the hike itself "should prove to be a non-event."

That said, O'Rourke adds that the hike will result in a positive real Fed Funds rate - or effective Fed Funds rate minus the 12-month core inflation rate - for the first time since 2019.

The key to post-FOMC statement trading, as O'Rourke sees it, should be the message Chairman Powell conveys about the path of policy for 2023.

The New Year started with a chorus of Federal Reserve officials asserting the need to raise the Fed Funds rate above 5% and keep it there going into 2024.

O'Rourke view is that Chairman Powell will "do his best to reinforce that 'higher for longer' message."

Fed Funds futures expectations of the policy path are little changed since the December 14th FOMC meeting, indicating the policy rate will be 4.50% in December and 4.25% in January, which is "notably more dovish than the Fedspeak of 5.125%."

O'Rourke suspects there will be a great deal of speculation about a Fed pause, which he sees as moot since the tightening cycle is nearly complete. However, he believes the FOMC still needs to grapple with the challenge of stubbornly easy financial conditions and needs to sound hawkish to do so.

Therefore, O'Rourke thinks the market should focus on the FOMC sustaining a positive real Fed Funds rate, as it appears to him to be a good starting point for the FOMC to keep inflation on the path of deceleration.

(Terence Gabriel)



Euro zone banks are on a roll with their index .SX7E hitting fresh 11-month highs four times over the past 5 days.

Only Tuesday, a record profit at UniCredit CRDI.MI provided the latest reminder of how the industry could benefit further now that the region looks to have dodged a 2023 recession and the ECB cracks on with more rate hikes.

But the show isn't over.

Heavyweights Banco Santander SAN.MC, ING INGA.AS, Nordea NDAFI.HE and Deutsche Bank DBKGn.DE release their numbers on Thursday and investors will be watching closely for any fresh signs the sector has turned a corner after suffering from many years of central banks' ultra-loose policies.

Those four weigh a combined 34% on the Euro STOXX banks index and could also prove decisive in allowing it to climb to new highs, should the risk-on mood carry on.

The index needs another 3.6 percentage points to reach 2018 levels and at the current pace of gains it would need only three or four days to do so.

(Danilo Masoni)



Investors began what may well be a roller coaster day for the stock market - a little thing called the Fed, heard of it? - with a smattering of economic indicators, which offered a few unwelcome surprises.

First, private employers added 106,000 workers in January, according to payrolls processor ADP's National Employment index (NEI) USADP=ECI.

The number marks a 58.1% drop from the revised November figure, and fell a mile short of the 178,000 consensus.

But lest we prematurely announce any easing in the tight labor market - which has kept wage inflation hot - ADP says much of the drop in private sector job adds could be blamed on the weather.

"In January, we saw the impact of weather-related disruptions on employment during our reference week,” writes ADP's chief economist Nela Richardson. "Hiring was stronger during other weeks of the month, in line with the strength we saw late last year."

The Labor Department's more comprehensive January employment report due Friday is expected to show a more robust 190,000 private sector job adds, which would still mark a monthly drop of 13.6%.

Here's a look at the extent to which ADP is (or is not) an accurate predictor of the Labor Department's private payrolls number:

On the flipside, job openings in the U.S. unexpectedly jumped by 5.5% to 11.01 million in December - not exactly a sign of easing labor market conditions.

Economists projected a 2% drop in vacant positions.

The Labor Department's job openings and labor turnover survey (JOLTS) USJOLT=ECI, which measures churn in the jobs market, also showed new hires and fires ticking higher, with the quit rate holding steady.

Taken together, job openings outpaced new hires by 4.8 million, a 25% increase over November.

"The Fed isn't going to like this,” writes Andrew Crapuchettes, CEO at RedBalloon. "11 million job openings is the new normal in this tight labor market. The Fed and everyone else will just have to get used to it."

Next, U.S. factory activity contracted at a steeper-than-expected rate in the first month of 2023.

The Institute for Supply Management's (ISM) manufacturing purchasing managers' index (PMI) shed one full point to land at 47.4, south of the even 48 predicted by the Street.

A PMI print below 50 signifies a monthly reduction in activity.

New orders plunged and prices paid showed a much shallower contraction than anticipated - yet another sign that inflation is going to take its sweet time descending to the Fed's average 2% target.

On the bright side, the employment component returned to expansion territory.

Noting that the headline number is at its "lowest level since the coronavirus pandemic recovery began," Timothy Fiore, chair of ISM's Manufacturing Survey Committee added that participants are "reporting softening new order rates over the previous nine months, the January composite index reading reflects companies slowing outputs to better match demand in the first half of 2023 and prepare for growth in the second half of the year."

Not to be outdone, S&P Global also issued its final take on January PMI USMPMF=ECI, which landed at 46.9, just a hair above its initial flash take released a few weeks ago.

"Excess capacity is developing, which has in turn meant companies have scaled back their hiring and purchasing," says Chris Williamson, chief business economist at S&P Global.

Additionally, Williamson says "a slight uptick in the survey’s input cost and selling price gauges in January suggests that the road to lower inflation could be bumpier than previously anticipated."

Here's a look at how closely the dueling PMIs agree:

And finally, expenditures on U.S. construction projects surprised analysts by dropping 0.4% in December, according to the Commerce Department.

Both privately and publicly funded construction spending fell by 0.4%, with a 0.3% drop in residential reflecting ongoing softening in the beleaguered housing market.

Stocks opened red and have gained downward momentum as the morning has progressed, with the blue-chip Dow suffering the biggest percentage drop.

Economically sensitive chips .SOX and transports .DJT are providing rare glimpses of green.

(Stephen Culp)



The main U.S. stock indexes are lower early on Wednesday as investors cautiously await the Federal Reserve's decision on interest rates later in the day, while chipmaker Advanced Micro Devices climbed on an upbeat outlook.

According to the CME FedWatch Tool, a 25 basis point hike at the conclusion of FOMC meeting is a done deal, at 99.3%.

Stocks are under pressure, with the main indexes lower. The DJI .DJI is off more than 0.5%, while the Nasdaq .IXIC is just below flat. Most S&P 500 sectors are red with materials .SPLRCM taking the biggest hit. Healthcare .SPXHC and tech .SPLRCT are slightly green.

Transports .DJT are showing strength, up more than 1%, and the chip index .SOX, in the wake of AMD's report, is up more than 2%.

The S&P 500 just enjoyed its biggest January rise since 2019, while the Nasdaq .IXIC had its best January gain since 2001.

In a note, Howard Silverblatt, senior index analyst at S&P DJ Indices, said "As for the January barometer of 'so goes January, so goes the year,' it has been correct 71.28% of the time since 1929 (and it worked in 2022: January was down, as was the year), as this January has posted a 6.18% gain."

Silverblatt added, "The first day indicator is a coin-toss, correct 50% of the time (did not work in 2022, as the first day closed at a closing high, and it was the highest close of the year), with the first day this year down 0.40% - so one of the two are going to be wrong."

Here is a snapshot of where market stood around 45 minutes into the trading day:

(Terence Gabriel, Sinéad Carew)



The spread between the S&P 500 index's .SPX rising 50-day moving average (DMA) and its descending 200-DMA ended Tuesday at just over -8 points:

That's the tightest reading since March 14, 2022. At that time, however, the 50-DMA had broken below the 200-DMA, and these closely watched moving averages were diverging.

Given that they are now converging at just over 4 points per session, there is potential for a golden cross to occur over the next few days. Such a development can potentially suggest a major advance is underway.

The last such cross occurred in the wake of the pandemic crash on July 9, 2020. That golden cross occurred 75 trading days after the March 23, 2020 SPX low. This time, Tuesday marked the 74th trading day since the SPX's October 13, 2022 low, so there will a close symmetry in time should the cross happen by the week's end.

From the July 2020 cross, the SPX advanced more than 50% into its early-January 2022 record high.

Meanwhile, the SPX, which closed at 4,076.50 on Tuesday, faces resistance at four distinct September 2022-January 2023 highs that run from 4,094.21 to 4,119.28.

There is support around 4,015 (233-DMA/January 30th high) then 3,975 (broken resistance line from January 2022 high). The 50- and 200-DMA's should be down around the 3,952-3,948 area on Wednesday.

(Terence Gabriel)



(Terence Gabriel is a Reuters market analyst. The views expressed are his own)


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