Market update: Fed overdelivers in the dovish direction, Dollar drops, commodities jump

21 Mar

by Mihály Tatár

 

Good Morning!

 

  • Surprising the market, the Fed was way more dovish than the majority expected, forecasting a single rate hike and only somewhere in 2020 – meaning, if the economy weakens further, never – , and deciding essentially that for now, it won’t reduce its titanic 4 trillion USD balance sheet built up during the unprecedented easing years. (The popular narrative is that the Fed ’folded’ under the pressure of the global slowdown and Donald Trump – but also note that, as discussed here before, nobody is interested in an even stronger Dollar.) Naturally, the USD dropped (EURUSD 1.1420, USDHUF 274, USDPLN 3.74, Yuan the strongest since July 6.67 making Washington happy, yields crashed (US 10Y yield 2.52% – the difference of the US 3 month treasury bill rate and the former dropped to the lowest since 2007 Financial Crisis, but hey, there is absolutely no Japanification in the Western world! Great job, Fed and ECB). Commodities surged (Gold 1319 USD, WTI 60.20, Brent 68.70 USD, both reaching their key topside levels, Copper +1%), while stock markets were less euphoric (Shanghai +0.24%, SPX futures +0.20%), after Trump told China that it will keep tariffs ’for a substantial period of time’ to ensure compliance, as the Chinese ’have had a lot of problems living by certain deals’. (No comment.) In other news, the Pound slipped lower (GBP 1.3160) on the EU telling May she can’t have her extension until she persuades the UK Parliament to support her Brexit deal (think about the logic of this for a minute, and imagine the Bundestag was told this by the US. It’s no wonder more and more European politicians themselves criticize the entire philosophy of the Brexit Withdrawal Agreement); the EURHUF bounced from 312.70 to 313.90 after Hungary’s governing Fidesz party was suspended in the EPP, while the Zloty strengthened further (EURPLN 4.279); and Google was fined for 1.5 billion euros by the EU for blocking rival search advertisers. (Interestingly, the decision had very different readings by analysts: Some summarized it as ’those who can not innovate, regulate’, and that ’the commission should instead figure out why a block of 500 million people missed the entire big tech revolution’, while others praised the move as ’somebody finally having the balls to discipline tech giants’. Anyhow, stock traders didn’t feel Google being intimidated, and cared more about its groundbreaking game streaming service, the share price rallied 2%.)

 

 

Have a nice day,

Mihály

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