General Market Analysis 02/06/23

Potential Rate Pause Spurs Markets – Nasdaq at 9-month Highs.

US stock markets surged higher yesterday as Fed officials advised of the possibility of a pause in the tightening cycle in June. The Dow closed up 0.47%, the S&P up 0.99% and the tech-heavy Nasdaq again led the way to finish 1.28% higher than the previous close. The dollar reacted strongly, dropping over 0.5% on the day as major currencies surged back from multi-month lows and US treasury yields fell off once again, the benchmark 10-year now trading at 3.6064%. In the commodity sector, Gold continued its recent bounce-off lows to trade back above $1,980/oz and Oil jumped, WTI back above $70 a barrel.

Next Fed Meeting is Lining up to be very ‘Live’ly.

Pardon the pun (it is Friday) but there is an element of seriousness on the volatility around this month’s FOMC meeting, which has been building for a while. The market is now pricing in a 20% chance of a rate hike for the Fed at its next meeting in 12 days’ time, down from 67% just a couple of days ago. When you are having swings like that around a central bank meeting, let alone the biggest central bank, then markets will remain volatile. Two major things that investors are taking from recent updates are that it is evident that the members of the FOMC are clearly not aligned moving into this meeting and that talk is now of a ‘pause’ rather than an end to interest rate hikes. Given these factors, it is likely that this meeting will be ‘live’ in the extreme and it wouldn’t surprise many if we go into it with a 50/50 chance of a pause or a hike.

Non-Farm Friday Ahead

It’s the first Friday of the month again, which means that we have Non-Farm Employment data ahead of us in the final trading session of the day. Markets have been lively this week already with the US debt issue coming to a head and Fed rate move expectations swinging daily. There is little out in the Asian and European sessions today to disturb the scorers so expect the focus to be on the big US jobs numbers out in the New York session, expectation is for a 193k print in the non-Farms with the unemployment rate nudging higher to 3.5%