Photo - Andreas Zanin
Andreas Zanin
Analysis, Market Analysis | February 1, 2024

JASPER’S MARKET SQUAWK 01-02-2024

Fed Holds Rates Steady, BOE Today

Market Movers

  • US stocks tumble the most since 2021 as the Federal Reserve held rates steady, dismissing a March rate cut.
  • Dollar reaches near 7-week high post-Fed’s policy decision, affecting major currency pairs.
  • GBP/USD steady before Bank of England (BoE) rate decision.
  • Two-year Treasury yields drop to 4.248%.
  • New York Community Bancorp shares plunge 37%, impacting the regional banking sector.

Econ Calendar

  • Bank of England policy meeting and quarterly policy report.
  • European Central Bank (ECB) speakers including President Lagarde.
  • US January ISM manufacturing survey and weekly jobless claims.
  • Q4 US productivity and labour costs; December construction spending.
  • EU December CPI and unemployment rate; Global PMIs for January.

What’s Happening

US stock markets turned lower following the Federal Reserve’s decision to hold interest rates steady, effectively ruling out a rate cut in March. This decision, reaffirmed by Fed Chair Jerome Powell in his press conference, led to a significant reaction in the stock markets, particularly affecting tech and tech-heavy megacap stocks. The S&P 500 recorded its steepest daily loss since September 2021, underlining the market’s sensitivity to the Fed’s policy directions.

The dollar’s climb to a near seven-week high against major currencies is a direct consequence of the Fed’s latest policy stance. Jerome Powell’s dismissal of a March rate cut has reinvigorated the dollar, impacting currency pairs like EUR/USD and USD/JPY. This shift in currency dynamics reflects broader market anticipations of the Fed’s future moves, influencing international forex markets.

The bond market reacted to the Fed’s decision with a notable drop in two-year Treasury yields, which fell to 4.248%. This movement signals investors’ risk assessment and their expectations for future interest rate changes.

The Bank of England is scheduled for its inaugural meeting of the year this Thursday, and it is widely anticipated to maintain the interest rate at 5.25%. Given the more rapid than anticipated deceleration in inflation, there’s a strong market anticipation for discussions about rate reductions. However, this makes them susceptible to any form of resistance from the authorities.

Of note for the US banking sector was the 37% plunge in New York Community Bancorp shares, which potentially marks a new dramatic turn for regional banks.

Chart of the Day

Now, since they were no longer loading the 4915 for sale and given the rising lows that the market is making, I tried a long. Break even and TP just before VWAP. Furthermore, on the lows you see in the bubble chart, you can see icebergs and stops made. Now end of games for today, waiting to hear Powell this evening.

Source: Matteo Marchetti, KTM Market Analyst

For all the latest market developments follow Matteo @MMTradingKTM and Key to Markets @keytomarkets on Telegram

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