Saturday, December 10

Wall Street awaits Powell’s words at the head of the FED with increases

Microsoft shares are down more than 2% in pre-opening after the company released better-than-expected quarterly earnings forecasts. Shares were previously trading more than 4% lower after Microsoft’s latest quarterly report showed moderate revenue growth from its Azure cloud business.

Moderna rises sharply on Wednesday, with shares gaining 4.6% in premarket after an improvement by Deutsche Bank. Additionally, Tesla shares rose 4.4% ahead of the electric car maker’s earnings report due after the close.

Corporate earnings season also continues on Wednesday, with Boeing Co and AT&T reporting before the bell. Tesla and Intel will release their latest quarterly numbers afterward.

FED meeting pending

Although before we will know what the FED has to say in terms of monetary policy. Today concludes the two-day meeting of the organization and, although the central bank is not expected to announce changes in its monetary policy, it will be important to know the roadmap on how and when the FED will raise interest rates as well as the next steps to be followed by the agency to continue with the process of monetary normalization.

If Powell shows great forcefulness in his speech and opens the door to more than three/four rate hikes in 2022 – futures discount with a 65% probability four hikes in 2020 – and at the beginning of the reduction of the Fed’s balance sheet, stock markets are going to be more nervous than they already are, as this would mean confirming their “worst” scenario. “If, on the other hand, Powell is not excessively concerned about inflation and reiterates that the US central bank will gradually raise its official rates starting in March and does not stress the urgent need to start the process of reducing the balance from the Fed this year, this is likely to facilitate a small relief rally in the bags. But all this will happen with the European stock markets closed, which tomorrow, without a doubt, will pick up the reaction of investors on Wall Street to what “the Fed does and says”, acknowledge the experts at Link Securities.

The Dow ended Tuesday’s session down 0.2%. These moves came a day after the Dow rallied from a 1,115-point deficit and posted a slight gain. The S&P 500 and Nasdaq Composite also closed off their session lows on Tuesday, but still lost 1.2% and 2.3%, respectively.

Anu Gaggar, global investment strategist at Commonwealth Financial Network, believes this sharp volatility is a byproduct of investors bracing for tighter monetary policy from the Fed. “The market is showing signs of withdrawal as it grapples with the possibility of the Fed withdrawing the call optionGaggar said. “It almost feels like the market is behaving a little inconsistently, not knowing which way to go: down because the Fed is tightening or up because the Fed is finally acting to curb inflation and is it’s loading up on ammunition while economic growth remains strong.” “Between the rate hikes and the $9 trillion balance sheet reduction, we could be looking at a rapidly changing monetary regime,” Gaggar said.

Regarding the tension between Russia and Ukraine, US President Joe Biden said last night that there has been no change in the position of the Russian forces and that they would sanction Vladimir Putin directly if he invaded Ukraine. The Kremlin spokesman declared yesterday that “The US movement only increases tensions but we remain focused on dialogue”. In turn, he announced that Putin will speak this week with the President of France, Emmanuel Macron, and with the President of Ukraine, Volodymyr Zelensky. According to the official Russian news agency Ria, Russia began a combat readiness inspection of more than 6,000 soldiers in the south of the country. On the other hand, and according to a US official, his country continues with preparations to impose new sanctions on Russia. In addition, the White House national security adviser noted: “The troops are ready to leave at the same time that NATO notifies such a decision”

Treasury yields have soared to start the year in anticipation of tighter monetary policy by the Fed. Last week, the yield on the benchmark 10-year note briefly topped 1.9%. On Tuesday, the yield closed at 1.77%, which is more than 20 basis points above where it ended in 2021. At this time, Yields rose across the curve, with the 10-year yield recently standing at 1.79%.

As for the macro data, the international trade figures will be published on Wednesday at 2:30 p.m. New home sales data will be released at 3pm.

In the commodities market, Brent Oil Futures rose 0.72% to $87.82 while West Texas futures rose 0.55% to $86.07.

As for the EUR/USD, it is slightly down to $1.1278 with Bitcoin continuing its upward climb and, at a rate of 4%, trading at $37,921.4.