Stocks Go Nowhere Ahead of the Fed
Global stock markets had a very quiet Tuesday, as traders took a step back before tomorrow much-awaited Fed rate decision. While most of the major indices finished the day virtually unchanged, risk assets gained ground in general, as investors sentiment improved following the slightly nervous Monday session.
DAX 30 Index Futures, 4-Hour Chart Analysis
European and Asian stocks were steadily holding on to last week’s gains, with even the Chinese market settling down with only slight losses, despite the country’s exit from the scheduled trade talks with the US.
On Wall Street, the Nasdaq and the Russell 2000 outperformed the Dow and the S&P 500, signaling a risk-on shift under-the-hood, even as the major indices traded in very narrow ranges in the low-volume low-volatility environment.
EUR/USD, 4-Hour Chart Analysis
Currencies had a much more active season, even as the major pairs didn’t experience real trending moves, before the central bank meeting. The EUR/USD pair, which has been in the center of attention for days finished with small gains after some sudden spikes in both directions, as traders tried to bet on tomorrow’s renewed guidance by the Fed.
In economic news, the US CB Consumer Confidence Index came in above expected at 138.2, a 17-year high, just shy of the all-time high set in 2000, right at the time of the peak of the Dot-Com bubble. On the other hand, the Case-Shiller Housing Price Index missed the already modest consensus estimate, with an only 5.9% yearly price increase, once again confirming the slowdown in the segment in the rising yield environment.
XHB (Homebuilder ETF), 4-Hour Chart Analysis
Shares in the sector are down by 20% on average compared to the January bull market high, and as Treasury yields in the US are still hitting multi-year or even decade-long highs across the yield curve, further pain could be ahead for bulls in the coming months.
That said, a dovish surprise tomorrow could set up a pullback in yields and a possible bounce in the sector, even as the general tightening trend will almost certainly persist for a while.
Rate Hike Near Certainty with All Eyes on the Fed’s Guidance
The odds of the third hike this year by the Fed are almost 100% for tomorrow, but even major changes, and sizeable surprises are possible, with regards to the economic guidance and the Central Bank’s preferred monetary as well.
2-Year US Treasury Yield, 4-Hour Chart Analysis
The US-China trade war could serve as a dovish excuse, despite its limited effects so far, while the US economy provided plenty of ammunition to hawks, such as strong growth, an uptick in some of the key inflation measures, and a tight labor market.
While the 2-Year Treasury yield failed to close at a new cycle high, the short-end of the curve is at a decade-long high, so a bigger surprise could lead to a very volatile afternoon session tomorrow.
Copper Futures, 4-Hour Chart Analysis
Commodities also had a mostly quiet and mixed session with WTI Crude oil slightly retreating off its 10-week high near $73 per barrel and gold holding on near the $1205 level, but copper experiencing more volatility and closing with muted losses after Chinese markets reopened.
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