Until the end of the year, the Federal Reserve is expected to hike rates each time it has an interest rate meeting. While this may boost the stocks of commercial banks, the rest of the stock market may drop. Traders are looking forward to the US corporate earnings reports. JPMorgan Chase will be the first to share its performance on April 13.
The meeting minutes released by the Federal Reserve share a very hawkish stance and an aggressive rate-raising schedule. That is potentially impactful to the entire market. Do you want to learn what is happening with oil, gold, and crypto? Read about that in today’s news release.
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US Fed Plans to Aggressively Fight the Out-of-control Inflation
In 4 out of 5 business days last week, USD grew against other currencies. USD/JPY formed one of the strongest uptrends and confirmed it by breaking the correction candlestick pattern indicated on the below chart. After that, however, it lost upward momentum. If JPY doesn’t firm early this week, USD may keep rising.
EUR and Other Currencies
While most other currencies were stable, the hawkish US Fed and mildly dovish ECB made the EUR drop against the USD. The interest rate is the Fed’s primary tool and, therefore, it’s impactful on the world economy. This week, the US Core CPI and PPI figures will be released to indicate the inflationary dynamics. If inflation keeps rising, that may push the Fed to keep using the rate to fight it.
While the USD firms on a high interest rate, the stock market will likely suffer from high costs of borrowing and currency exchange. In the meantime, if people reduce or stop spending, that will affect the overall retail sales, and the stock market will drop even more.
US Stock Market
After several days of a downtrend, stocks are trying to pick up upward momentum.
The US stock market was going down most of last week. On Thursday, US indices reversed to growth in the last hour of the business day. In the meantime, the market is digesting the Federal Reserve's Meeting Minutes. The report indicated that policymakers were ready to hike rates at each meeting throughout the year. The main goal is to stop inflation which has already reached 7.9% in March. The massive stimulus used by Fed during the Coronavirus pandemic and the unexpected rise of oil prices due to the Russia-Ukraine crisis are the main inflation drivers.
In the meantime, the tech and healthcare sectors supported the market. Primary banks such as JP Morgan Chase, Goldman Sachs, and Morgan Stanley will release their earnings reports this week, opening the earnings season in the US. While the performance shared for the first quarter is usually the strongest against other quarters, weak reports might set the tone for the rest of the year.
Some tech stocks and consumer brands are doing exceptionally well. Walmart and Costco, the famous consumer staple stores, have both seen strong uptrends. Walmart seems particularly worth investing in. When a reversal occurs, we suggest you add it to your portfolio. Putting this stock on your watchlist will allow you to buy it when a correction comes. The next earnings date is May 17, and technical analysis will likely be particularly useful in the month ahead.
We believe a good moment to open a position with the Walmart stock will come when the price drops down to the 20-period Simple Moving Average. The latter is also the centerline of the Bollinger Bands indicator. The CCI is above the level of 100. That means the path of least resistance for the stock price in the short term is down. That may be an opportunity to buy this stock at a discount.
While Most Stock Struggle, Pharma Stock May be a Good Choice
Bristol Myers Squibb is showing superior performance in all aspects. This is a health tech company that manufactures and globally markets biopharmaceutical production. On Thursday last week, its stock price made a new record high. Moreover, while the rest of the market was experiencing a selloff, this stock kept growing. Several new drugs of Bristol Myers Squibb are at the testing and approval stage. We believe this company’s financial stability corresponds to its stock’s strong performance.
The next earnings report date is April 29. The current consensus estimate is $11.33bln. That is 2.28% higher than the figure for last year's first quarter. Generally, we expect the company to keep growing and suggest traders add this stock when it temporarily declines. Price dropping down to the 20-period or 100-period SMA has historically been a good moment to enter the market. The lower the trendline to which the price drops, the better the entry point.
With Geopolitics in Focus, Commodities are Under Pressure
Tensions caused by geopolitical uncertainty and the US Fed’s hawkish policy are currently the primary market drivers. While the state of the Russia-Ukraine conflict remains unchanged, sanctions against Russia are piling up, and more are expected.
On April 6, the FOMC released the March Meeting Minutes. It indicated a rate hike of approximately 170 basis points before the year’s end. That is nearly 70 basis points higher than the expectation formed after the January meeting.
The country’s inflation is the highest in four decades, and that makes many support the hawkish line. The Meeting Minutes boosted the US Dollar and the demand for safe-haven gold. The latter has been trading flat at $1,930 and near the 50% Fibonacci retracement level since January 2022.
The price of Brent oil went down after the IEA’s announcement of an additional 60 million barrels of oil to be released from reserves. That comes on top of the 180 million barrels to be released by the US as announced last week. Brent dropped to nearly $100 per barrel and may stay at this level due to uncertainties in the future supply and demand.
One of the reasons for such uncertainties is the stalled negotiations between Iran and the US on Tehran's nuclear program. That is a potential problem for lifting sanctions on Iran and additional oil production in it. In China, the three-year-long pandemic that has recently led to additional lockdowns and social restrictions also clouds the oil demand prospects. In the near term, additional steps to release oil reserves may help stabilize the oil price. In the mid to long-term, replacing these reserves will keep prices elevated.
Climate Issues and Supply Worries Make the Gas Price Rise
The price of Natural Gas keeps rising due to supply worries and cold weather. While the market is waiting to see if the Russian Gas supplies halt due to payments in Russian rubles, storage supplies are driving the price higher. The Natural Gas price broke through both resistance levels we mentioned last week but failed to secure above 6.2920. After this level, the next resistance level will be at 6.5257 set by the price in October 2021.
Hawkish Fed Made The Two Primary Cryptocurrencies Plunge
As the FOMC’s Meeting Minutes released on April 6 indicate an tight monetary policy, it boosted the US Dollar and pressed down on US indices and crypto assets. While investors leaving avoiding risky assets, the correlation between Bitcoin and US equities has grown over the past 90 days.
On April 6, Bitcoin 2022 Conference started in Miami with tens of thousands of attendees. The president of El Salvador, Nayib Bukele, was among the most expected guests as his country has become the first and only country that accepted Bitcoin as legal tender. However, he was not able to attend due to unforeseen circumstances in El Salvador.
Bolt Payment services plans to buy Wyre Payments for $1.5 billion. This will support crypto transactions for 1-click purchases at checkouts. The integration is expected later this year.
The Fear and Greed index has dropped back into the state of Fear at 34. The global crypto market capitalization is $2.01T and the total cryptocurrency market value is $113.46B.
Bitcoin Dropped Below the Key $45,000 Level
With Bitcoin and Ethereum in focus, cryptocurrencies have been notorious for their rapid volatility. After the FOMC’s meeting minutes were released, Bitcoin broke the uptrend line support and the key level of $45,000. While it currently trades around $43,600, the nearest support is around $42,200, and the key resistance levels are $45,000 and $48,192.
Risk warning: The content of the article does not constitute investment advice and you are solely responsible for your trading activity and/or trading results.
In relation to monetary policy, policymakers who suggest raising interest rates to control inflation are called “hawks” and their police line “hawkish”.
In the Meeting Minutes, the US Fed shares details of the Committee members' views on the country’s economic outlook and the monetary policy.
The stimulus is when monetary policy or fiscal policy, or stabilization policy in general, are used to stimulate the economy. Stimulus can also refer to monetary policies such as lowering interest rates and quantitative easing.
In quarterly earnings reports, public companies share their performance releasing such data as net income, earnings per share, earnings from continuing operations, and net sales. By analyzing quarterly earnings reports, investors can assess how the company is doing financially to decide if it's worth investing in.
Bollinger Bands consist of a centerline, which is usually an SMA, and two price channels above and below it. Those two bands are the standard deviations. They expand and contract with the volatility of the instrument price.
The Federal Open Market Committee is the branch of the Federal Reserve System that determines the direction of monetary policy specifically by guiding open market operations. The FOMC consists of the Board of Governors with seven members in it and the five Federal Reserve Bank presidents. The Committee has eight regularly scheduled meetings each year, and these are frequently the subject of much speculation on Wall Street.
Inflation is a decrease in the purchasing power of money that comes with a general increase in the prices of goods and services in an economy.
A safe-haven investment is expected to keep or increase its value during times of uncertainty and market turbulence. Investors seek safe-haven instruments to limit their risks in the event of market downturns.
Fibonacci retracement levels are horizontal lines that indicate the likely levels of support and resistance.
The International Energy Agency works with countries around the world to shape energy policies for a secure and sustainable global future.
If a central bank’s monetary policy is “tight”, that means it will try to reduce the demand for money and limit the pace of economic expansion. Usually, this involves increasing interest rates to reduce inflation.
Bolt Payments is an online payment and checkout platform for e-commerce retailers, including both small and medium-sized businesses and enterprise businesses. It increases conversion rates and reduces the number of abandoned carts through its fast and low-friction checkout process.
Wyre offers services for retail and business customers to exchange national currencies and cryptocurrencies between banks and crypto wallets, as well as trading cryptocurrencies.
1-Click, also called one-click or one-click buying, is the framework that allows making a purchase with the previously entered payment information.