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    Stocks Plummet as Powell Signals No Rate Cut in March

    February 1, 2024

    In a significant market downturn, Federal Reserve chairman Jerome Powell’s indication of no rate cut in March resulted in the Dow Jones Industrial Average’s worst performance since December. Despite this, the Federal Reserve addressed concerns by removing a tightening bias statement. Notable stock movements included Alphabet’s 7% drop due to disappointing ad revenue, while Boeing’s shares climbed over 5%. Despite the overall downturn, January closed positively for major averages. Powell’s as-expected announcement on rate cuts left the dollar index exhibiting volatility, influenced by below-forecast U.S. economic indicators. Specific currency pair movements included USD/JPY rebounding and EUR/USD facing a decline driven by disappointing Eurozone data. Sterling experienced a drop ahead of the BoE meeting, hinting at a probable rate cut in May or June.

    Stock Market Updates

    Stocks experienced a significant decline as Federal Reserve chairman Jerome Powell indicated that the central bank was unlikely to cut rates in March. The Dow Jones Industrial Average dropped by 317.01 points, marking its worst performance since December, while the S&P 500 and Nasdaq Composite also saw substantial declines, with the former experiencing its worst day since September and the latter since October. Powell’s comments on the lack of confidence for a rate cut in March led to a session low for the major averages.

    Despite the overall market downturn, the Federal Reserve did address traders’ concerns by removing the statement signaling a tightening bias, emphasizing that the policy rate might have reached its peak for the tightening cycle. Treasury yields fluctuated, with the 10-year yield trading around 3.9%. Notable stock movements included Alphabet’s over 7% drop, the worst since October 25, driven by disappointing ad revenue, while Boeing’s shares climbed over 5% due to quarterly results beating analyst estimates. Overall, the market’s monthly gains were impacted, but January still closed positively for all three major averages, with the S&P 500 adding 1.6%, the Dow advancing 1.2%, and the Nasdaq gaining 1%.

    Data by Bloomberg

    On Wednesday, a broad decline was observed across all sectors, with the overall market experiencing a downturn of -1.61%. Notably, Information Technology and Communication Services were the hardest hit, facing substantial losses of -2.11% and -3.93%, respectively. The negative trend extended to various industries, including Energy (-1.90%), Consumer Discretionary (-1.85%), and Financials (-1.22%). Sectors such as Health Care, Utilities, and Consumer Staples also saw minor decreases, contributing to the day’s overall bearish sentiment. Industrials, Materials, and Real Estate experienced moderate declines, emphasizing a widespread pullback in the market on this particular Wednesday.

    Currency Market Updates

    In response to an as-expected Fed announcement, the dollar index exhibited volatility in Wednesday’s trade. Fed Chair Jerome Powell refrained from committing to a schedule for rate cuts, leaving markets frustrated as they sought clarity on a potential move in March. Despite ending the FOMC’s tightening bias, Powell emphasized the need for upcoming data to confirm the sustainability of the disinflation trend and determine the timing of any easing. The dollar index strengthened by 0.15%, influenced by below-forecast U.S. economic indicators and fluctuations in risk sentiment tied to declining mega cap and regional banks stocks.

    In specific currency pair movements, USD/JPY rebounded after a significant initial fall, spurred by a rise in JGB yields following discussions about exiting negative rates in the December BoJ meeting. EUR/USD faced a 0.36% decline, driven by lower Euro zone yields due to disappointing German data and falling inflation figures. The ECB, expected to wait until April for a cut, aligns with the Fed’s projection of 145bp in cuts for the year. Meanwhile, Sterling experienced a 0.24% drop ahead of the BoE meeting, anticipated as a prelude to a probable rate cut in May or June, maintaining a stagnant range between 1.2600 and 1.2800 since mid-December.

    Picks of the Day Analysis
    EUR/USD (4 Hours)

    EUR/USD Faces Bearish Pressure as Fed Maintains Rates Amidst Bullish Dollar Momentum

    The EUR/USD pair experienced renewed selling pressure as bullish momentum in the US dollar pushed it towards the lower end of the weekly range, hovering around the 1.0800 region. The Federal Reserve, maintaining its Fed Funds Target Range at 5.25%-5.50%, provided no surprises during its event, with Chair J. Powell expressing a belief that the policy rate may have peaked. Despite this, the greenback’s upside pressure increased as Powell indicated that an interest rate cut in March is unlikely. Investors are now debating the possibility of a rate cut in March or May, with probabilities at approximately 36% and 58%, respectively, according to the FedWatch Tool by CME Group. As market participants await the critical US Nonfarm Payrolls on February 2, the focus remains on deciphering clues about the potential timing of a rate move in March or May.

    Chart EUR/USD by TradingView

    On Wednesday, the EUR/USD moved higher to reach the upper band of the Bollinger Bands before going back lower. Currently, the price is moving lower near the lower band, suggesting a potential downward movement to reach below the lower band. Notably, the Relative Strength Index (RSI) maintains its position at 40, signaling a neutral but bearish outlook for this currency pair.

    Resistance: 1.0850, 1.0907

    Support: 1.0795, 1.0745

    XAU/USD (4 Hours)

    XAU/USD Surges Past $2,050 as US Dollar Weakens Amidst Inflationary Easing

    The US Dollar faces significant selling pressure as the Federal Reserve approaches a monetary policy decision, causing Gold (XAU/USD) to climb beyond $2,050 per troy ounce. The Greenback weakened following the release of US employment data, indicating a further easing of inflationary pressures. Despite a slower-than-expected job market growth in January, the ADP National Employment Report suggests improved prospects for inflation. Simultaneously, the Q4 Employment Cost Index reveals a modest 0.9% increase in wages and benefits, contributing to a decline in government bond yields. Investors now turn their attention to the upcoming Fed decision, anticipating potential impact on the US Dollar, especially if Chair Jerome Powell’s statements lean towards a dovish stance.

    Chart XAU/USD by TradingView

    On Wednesday, XAU/USD moved higher and was able to reach the upper band of the Bollinger Bands. Currently, the price is moving lower between the middle and upper bands suggesting a potential downward movement to reach the middle band. The Relative Strength Index (RSI) stands at 56, signaling a neutral but bullish outlook for this pair.

    Resistance: $2,052, $2,062

    Support: $2,031, $2,019

    Economic Data
    CurrencyDataTime (GMT + 8)Forecast
    USDFederal Funds Rate03:005.50% (Actual)
    GBPBOE Monetary Policy Report20:00 
    GBPMonetary Policy Summary20:00 
    GBPMPC Official Bank Rate Votes20:002 – 0 – 7
    GBPOfficial Bank Rate20:005.25%
    GBPBOE Gov Bailey Speaks20:30 
    USDUnemployment Claims21:30213K
    USDISM Manufacturing PMI23:0047.2