So, the Federal Reserve was even more dovish than we had anticipated and the markets’ reaction was a swift one: a rally in bonds, metals and foreign currencies as yields and the dollar sold off.
Equity markets also popped higher after the Fed signalled US interest rates will remain on hold for 2019 and that the monthly reduction of its bond holdings will slow starting from May, with a cut from $30 billion to $15bn, before stopping the balance sheet reductions in September.
After such an unexpected dovish tilt, you would have expected to see further immediate follow-through in momentum for the dollar and stocks. Yet, stocks pared their gains on Wall Street and the S&P 500 finished well off its best levels.
In Europe, the German DAX has again started the day on the back foot after selling off yesterday, while the major other EU indices were trading mixed at the time of writing. US index futures were flat-ish. It looks like investors may be concerned at the lack of further progress in US-China trade talks.
Donald Trump’s announcement yesterday that tariffs would remain in place for a long time to make sure China complies with any deal may be the reason why stocks have reacted in the way they have.
It is also plausible to interpret the Fed’s surprisingly dovish tilt and the downgrade in its economic forecasts as a sign that the world’s largest economy could slow more sharply than expected and that this may hurt future company earnings. However, with most major central banks still keeping their respective monetary policies extremely loose, now more than 10 years since the global financial crisis, the downside could be limited for stocks.
Indeed, despite the not-so-bullish reaction to the Fed announcement, the S&P 500 was still holding its own above key support around 2814, which had been a big resistance zone in the past. The technical bias would only turn bearish if the index were to break its most recent swing low at 2722.
Disclaimer: The information on this web site is not targeted at the general public of any particular country. It is not intended for distribution to residents in any country where such distribution or use would contravene any local law or regulatory requirement. The information and opinions in this report are for general information use only and are not intended as an offer or solicitation with respect to the purchase or sale of any currency or CFD contract. All opinions and information contained in this report are subject to change without notice. This report has been prepared without regard to the specific investment objectives, financial situation and needs of any particular recipient. Any references to historical price movements or levels is informational based on our analysis and we do not represent or warranty that any such movements or levels are likely to reoccur in the future. While the information contained herein was obtained from sources believed to be reliable, author does not guarantee its accuracy or completeness, nor does author assume any liability for any direct, indirect or consequential loss that may result from the reliance by any person upon any such information or opinions.