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By Swissquote Analysts
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Fed says slower hikes but higher rates. Selloff continues

Jerome Powell abated the latest risk rally yesterday, saying that the rate hikes will slow down, but the levels will go higher. Equities sold off, the yields jumped, the dollar gained, and hopes of seeing the end of the market turmoil got completely dashed.

The US 2-year yield soared to 4.90%. The Dow Jones lost more than 1.50%, the S&P500 dived 2.50% and Nasdaq fell more than 3%.

In the FX, the prospect of higher terminal rate from the Fed boosted the USD appetite. The dollar index gained yesterday, as the EURUSD slipped again below its 50-DMA, Cable slipped below 1.14, the dollar-franc is back above parity, the dollar-yen is set for another advance to 150 on the back of the diverging rate prospects between the Fed that is now set to increase rates slower, but higher, and the Bank of Japan (BoJ), set to do nothing, for now.

Gold is also under the pressure of a stronger US dollar and the higher US yields. Bitcoin, on the other hand, is surprisingly resilient to the broad risk selloff.

The barrel of American crude rose to $90, as the latest EIA data showed that the US crude inventories fell by more than 3-million-barrel last week, much faster than a 200’000 barrel decline expected by analysts.

Today, the Bank of England (BoE) is also expected to raise rates by 75bp today, but that expectation is down from around 100-150bp hike expected when Liz Truss was busy shaking the financial markets with her crazy mini budget. The BoE should no longer act twice as aggressively to compensate for the actions of an irresponsible government, but it still must fight the rising inflation in Britain.

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Fed says slower hikes but higher rates. Selloff continues | MarketTalk: What’s up today? |Swissquote
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Swissquote (in English)
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Powell will probably hammer dovish hopes, reverse rally

Jay Powell will probably hammer the dovish hopes, and the latest risk rally when he speaks following the FOMC decision today.

In preparation for an unpleasantly hawkish Fed statement today, the US 3-month yield spiked above the 4.20% mark, the level it was normally supposed to be in 18 months, the 2-year yield returned above the 4.50% mark, the US dollar index advanced and the US equities sold off, as yields jumped.

The ADP report is due a couple of hours before the Fed decision, and is expected to have eased below 200’000 in October. Any positive surprise will likely further boost the Fed hawks, and dampen the mood in risk assets.

In China, stocks extend gains on an unverified social media post that China will end its Covid measures. The Chinese foreign ministry spokesman said he was unaware of the plan. Disneyland in Shanghai was shut with people in it, after a Covid case was found in the park… I wouldn’t cry victory just yet!

In Britain, the first day of bond selling from the Bank of England was a success. The BoE sold 1$750 million worth of bonds, demand exceeded offer, gilt yields pulled lower and sterling was steady.

Airbnb fell 5% post-market on disappointing Q4 outlook, Sony jumped near 10% in NY as softer yen helped boosting sales, BP announced the second biggest quarterly results, while Abiomed jumped 50% after Johnson & Johnson announced to buy the company.

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Powell will probably hammer dovish hopes, reverse rally | MarketTalk: What’s up today? | Swissquote
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Swissquote (in English)
Video news

Fed hawks resurface as FOMC starts two-day meeting

Equities fell and bond yields rose, as the hawkish Federal Reserve (Fed) fears resurfaced before Wednesday’s FOMC decision.

The Fed starts its two-day meeting, and could call the end of the aggressive rate tightening and signal slower rate hikes to enter the final phase of policy tightening, before pausing. But the Fed will not want to throw the foundation of a market rally, which could play against its fight against inflation.

In the Eurozone, inflation hit a record high of 10.7% in October, versus 10.2% expected by analysts, and the European Central Bank (ECB) Chief Christine Lagarde said that inflation came from nowhere, ignoring a decade-and-a-half of aggressive bond buying that threw the foundations of the present spike in inflation, boosted by the pandemic, the war and a global energy crisis.

The Eurozone yields spiked on expectation that higher inflation would mean higher ECB rate hikes in the future. But the euro didn’t gain, as currency traders priced in the rising recession fears that come along with the higher interest rates.

In Australia, the Reserve Bank of Australia (RBA) raised the interest rates by 25bp as expected and said there will be more rate hikes.

In Switzerland, the Swiss National Bank announced a 142 billion franc loss in the first nine months of the year; melting currency valuations, especially the melting euro, was to blame.

In precious metals, gold remains under pressure. The $1615 is the next important support. If the US dollar strengthens as a result of a sufficiently hawkish Fed statement this week, gold bears could pull out the $1615 support and tip a toe into the $1500s for the first time since April 2020.

Watch the full episode to find out more!

Fed hawks resurface as FOMC starts two-day meeting | MarketTalk: What’s up today? | Swissquote
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Swissquote (in English)