Daily Digest: Wednesday 20th March
USA
The FOMC interest rate decision was the headline release of the day. The Federal Reserve held rates at the current level of 5.5%, in line with analyst expectations for their March meet. Chairman Powell reiterated a cautious narrative, stating additional confirmations on the strength of inflation were required. Fed cut estimates for 2024 remain at 75bps across three meetings. The Fed are continuing to target a soft landing for the US economy, though if economic resilience continues we may see an almost goldilocks scenario where interest rates fall alongside unemployment, and growth continues.
US index activity was supported by positive reactions to the monetary policy decision. The Dow($INDU) rose 1.03% through trading to 39,512.13, breaking new all-time highs at its intraday peak. While the Nasdaq 100 ($NDX) rose 1.15% to 18,240.11, and the S&P 500 ($SPX) rose 0.89% to 5,224.62.
After breaking headlines last week following the loss of a Pentagon contract, Intel ($INTC) has managed to secure $8bn in direct US government funding. This package comes as part of President Biden’s Chips and Science act, which was covered in the State of the Union Address on March 7th. This signals institutional backing for the firm has far from dried up, while also highlighting the unique position Intel holds in the current government’s plans to strengthen domestic chip supply infrastructure.
US Chipmakers remained the focus of tech investors after hours, as Micron ($MU) reported their earnings, figures came in at a positive shock with an EPS of $0.42 ahead of estimates of -$0.24, while total revenues were $5.82billion (est. $5.35b). Within 45 minutes of the close shares had risen 14.72% to $110.42.
Europe
UK CPI for February was 3.4%, 0.1 percentage points lower than analyst expectations at 3.5%. A lower-than-expected print suggests that present inflationary pressures remain, but are weaker than anticipated. This points to the success of monetary policy having drawn inflation down from its highs of 11.1% in October 2022. Though it should be noted that inflation remains 1.4 percentage points above the BOE target of 2%. The GBP acted accordingly, falling 0.5% against the dollar (9.30pm GMT), as currency traders factor in the now reinforced arguments for weakening monetary policy. February’s lower inflation print should be a confidence boost for the BOE as its policymakers await additional confirmations before changing their rate approach.
The FTSE 100 (FTSE) fell 0.012% to 7,737.38, with performance inhibited by a few weak equities. British insurance provider Prudential (PRU.L) led declines as shares fell 4.53%, following the firms earnings call. This move seems somewhat erratic, as results provided a positive shock, signalling a strong foundation for firm activity and financials into the future.
ECB President Lagarde made a public appearance, but it didn’t yield a great deal of information outside of the bank being unable to comment on the direction of rates after a pivot. This suggests inflationary controls will remain tight if the ECB were to start the cutting cycle.
Once again European indexes traded within tight margins as investors awaited the FOMC decision. The STOXX 600 (€SXXP) fell 0.0040% at 505.21, while the DAX (€GDAXI) rose 0.15% to 18,015.13, and the CAC (€FCHI) fell 0.48% to 8,161.41.
Rest of the World
Japanese markets were shut throughout Wednesday as the nation celebrated Equinox day, the Nikkei 225 (¥N225) therefore opens on Thursday at Tuesday’s closing price of 40,003. A public holiday didn’t stem losses on the Yen, with the currency falling further against the dollar to a rate of 151.672 by 11:11am GMT. A continued sell-off remains somewhat off-piste following the Bank of Japans rate pivot, however as pressure persists it is likely the Yen will see a test of the ¥152 level, its weakest point since the mid 90s. It would be fair to argue that the BOJ may have to intervene in the open market, shoring up the Yen, however, some caution should be expected as the banks monetary policy roadmap may lend itself to the same effect.
After a weak session on Tuesday, the Shanghai Stock Exchange Composite Index (¥SSE) rose 0.55% as traders tested support around the 3,070 level. The index closed at 3,079.69, with investors attempting to capitalise on a stronger economic outlook, as industry output begins a move toward its pre-Covid-19 levels. A more active Chinese economy has also contributed to volatility across commodities, notably oil, which had previously been hampered by a decrease in emerging market demand.
Cryptocurrencies
Bitcoin managed a late rally through Wednesday afternoon, rising to $67,064 from 24hr lows of $60,775. Altcoins also benefited from a market wide rebound with Ethereum rising 6%, Solana rising 7.9% , and Cardano rising 5.97% during the last 24 hours. The total market capitalisation of all cryptocurrencies now sits at $2.53 trillion dollars, up from $2.41 trillion yesterday. A strong recovery through the day seems to suggest that adverse price movements during the last five days have been a consolidation of pricing, as traders withdraw profits, and adapt their strategies pricing in these higher asset valuations.
'Crypto Stocks'
As noted last week so called ‘crypto’ shares seem to mirror the performance of wider cryptocurrency markets, meaning a rebound in prices this afternoon pushed US based exchange Coinbase Global Inc ($COIN) shares up 11.63% to $256.88, while MicroStrategy ($MSTR) shares rose 9.1%.
Commodities
Crude Oil trading through the European session was stunted, the absence of Japanese influence through the morning will not have helped. However, by the time US traders returned to their desks activity strengthened albeit against expectations. US Crude Inventories signalled another week-on-week drawdown of a further 2 million barrels, as demand across US businesses surges. However, by 9pm GMT, crude was trading down 1.95% at $81.84 per barrel, marking its largest single day decline during March.
Gold managed to reverse recent declines as UK inflation figures, alongside the FOMC rate decision gave increasingly dovish signals. Rate cuts benefit gold investors as the opportunity cost of holding the asset is reduced when bond yields fall, thus reducing the competitiveness of alternative investment products. As noted the general consensus within the US Fed is for 75 basis points of cuts this year, while tomorrow’s BOE rate decision should provide some clarity on the direction of UK interest rates into FY25. By 9pm GMT, gold prices had risen 1.36% to $2,189.10 per ounce, the highest close since March 11th.
Sources:
https://uk.finance.yahoo.com/world-indices/
https://uk.finance.yahoo.com/commodities
https://www.londonstockexchange.com/indices/ftse-100
https://www.binance.com/en-GB/price/bitcoin
https://www.binance.com/en-GB/price/ethereum
https://qontigo.com/index/sxxp/
Stock Market Activity Today & Latest Stock Market Trends | Nasdaq
https://coinmarketcap.com/charts/#market-cap
https://www.forexfactory.com
Definitions:
YoY - Year on Year, or, Year over Year
MoM - Month on Month, or, Month over Month
QoQ - Quarter on Quarter, or, Quarter over Quarter
ECB - European Central Bank
BOJ - Bank of Japan
Fed - Federal Reserve
BOE - Bank of England
CPI - Consumer Price Index
PPI - Purchasing Price Index
ETF - Exchange Traded Fund