The FP Markets research team produce First Light News during the early hours of the European session, ensuring traders and investors have the news needed to begin their day.

Good morning.

The US Federal Reserve hiked rates by 25 basis points yesterday, marking its 9^th consecutive increase since early 2022. According to the FOMC statement, the Fed stated that ‘additional policy firming may be appropriate’, with many considering this as somewhat of a downgrade compared to the previous statement: ‘ongoing increases in the policy rate may be appropriate’. The FOMC statement also specified that ‘recent developments (banking sector) are likely to result in tighter credit conditions for households and businesses and to weigh on economic activity, hiring and inflation. The extent of these effects is uncertain’.

Adding to this, from the Summary of Economic Projections (SEP), the so-called median ‘Dot plot’ shows that FOMC participants see one more 25 basis-point hike this year and a terminal rate forecast at 5.1%, which is unchanged from December’s projections. Also of note, the SEP showed unemployment slightly lower in 2023 to 4.5% versus December’s projection of 4.6%; PCE inflation is projected to be higher in 2023 at 3.3%, up from December’s projection of 3.1%, and finally, change in real GDP (growth) is projected to slow to 0.4%, down from December’s projection of 0.5%.

(Summary of Economic Projections – Fed)

Thirty minutes following the rate announcement, the press conference saw Fed Chair Jerome Powell state that officials remained intent on tackling inflation and were prepared to do more on rates if necessary. Powell also reaffirmed that rate cuts are not in their base case for the remainder of 2023 and that the situation is uncertain.

Fed funds traders now see a 37% chance of another 25 basis-point increase at May’s meeting, according to the CME Group’s FedWatch tool.

Across the markets, major US equity indices finished lower, each snapping a two-day bullish phase and producing daily bearish engulfing candles all around. The Dow dropped 530 points (-1.63%) to 32,030, the S&P 500 fell 65 points (-1.65%) to 3,936, and the Nasdaq 100 was down 174 points (-1.37%) to 12,567. According to the S&P 500 sectors, real estate stocks were hardest hit, shedding 3.7%, closely shadowed by financial stocks at 2.3%. US government Treasury rates bull steepened; the 2-year yield dropped 23 basis points, and the benchmark 10-year US Treasury yield sank 17 basis points.

Notable movers in the stock market were First Republic Bank (FRC), PacWest Bancorp (PACW) and Western Alliance Bancorp (WAL), dropping 15.5%, 17.1% and 5.0%, respectively. FAANG stocks were also on the ropes, with Meta Platforms (META), Amazon (AMZN), Apple (APPL), Netflix (NFLX) and Alphabet (GOOGL) all, aside from Apple, dropping more than 1.0%.

Markets Today

Overnight trading was mixed in Asia as markets digested the latest FOMC decision. The Nikkei 225 eked out modest losses (-0.2%) along with Australia’s ASX 200 snapping a two-day winning streak (-0.7%), while South Korea’s KOSPI gained on the session, adding 0.3%. European equity index futures are largely mixed this morning, while US equity index futures echo a positive tone.

Across the FX space, we see a relatively active market ahead of the London open. Procyclical currencies are bid; against the buck, the Australian dollar, the New Zealand dollar and the Canadian dollar all trade positively, while the US Dollar Index is seen extending losses, down 0.5%, as of writing. Regarding commodities, spot gold (XAU/USD) is bid (+0.4%) and spot silver (XAG/USD) is struggling to find direction (-0.1%), with oil (WTI) underpinned (+0.5%). Of note, gold is poised to retest the mettle of $2,000 per troy ounce; a decisive break here could imply we see the $2,070 March (2022) peaks retested.

Headline Events for the Day Ahead:

Swiss National Bank (SNB) Interest Rate Decision at 08:30 am GMT (Expected to Raise by 25bps).

Bank of England (BoE) Interest Rate Decision at 12:00 pm GMT (Expected to Raise by 25bps).

US Initial Jobless Claims for the Week Ending 18 March at 12:30 pm GMT (Expected: 198,000; Previous: 192,000).

Chart of the Day

The price of oil (WTI) has been trending south since March 2022 (clear on the daily timeframe) and has since rebounded from 15-month lows. Given the current situation, a sell-on-rally scenario could unfold at resistance from $72.73, with bears perhaps taking aim at support from $62.35.

(Trading View)

Major Currency Markets as of 7:35 am GMT:

(Trading View)

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