Published on: 2023-05-04
The Fed raised interest rates by 25bp and signalled a pause in further
increases to assess the fallout from recent bank failures, wait on the
resolution of a political standoff over the U.S. debt ceiling.
Gold closed above $2030 before rising to a record high of $2080.72 on Wednesday. Oil prices fell 4%, extending steep losses from the previous session.
U.S. stocks struggled for direction during the press conference, but major indexes all ended lower. A report that PacWest is weighing strategic options including a sale heightened concerns that the turmoil engulfing smaller lenders is far from over.
Commodities
The yellow metal benefited from increased safe haven demand as Fed Chair Jerome Powell warned that economic growth was cooling, and that credit conditions were likely to tighten further.
‘With lending conditions rapidly tightening in the wake of recent bank stresses, we think this will mark the peak for interest rates with recessionary forces set to prompt interest rate cuts later this year,’ analysts at ING wrote in a note.
U.S. gasoline inventories unexpectedly rose by 1.7 million barrels last week vs a drop of 1.2 million barrels.
Morgan Stanley lowered its forecast for Brent prices to $75 by year-end. ‘Downside risk to Russia’s supply and upside risk to China’s demand have largely played out and prospects for H2 tightness have weakened,’ the bank said.
Forex
Powell’s dovishness sent the U.S. dollar down. money markets have priced in roughly 80 basis points of rate cuts beginning July through to the end of the year.
The yen jumped more than 1%, for its best day in 6 weeks, pushed higher by cautious risk sentiment.
The ECB will raise interest rates for the seventh meeting in a row on Thursday as its long fight against stubborn inflation continues
Hawks argue that underlying price growth remains far too high and suggests that inflation could level off above the ECB's target unless the bank acts more aggressively.
"Inflation figures and results of the ECB's latest Bank Lending Survey cement the case for a downshift to 25 bps," BNP Paribas said in a note. "At the same time, today's data also underscore that rates have to rise further – we affirm our 3.75% terminal rate expectation."
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