JASPER’S MARKET SQUAWK 23-03-2023

Dollar and Stocks Crash on Dovish Hike

The Fed raised rates by 25bp but kept the dot-plot matrix unchanged at 5.1%. The dollar came under severe pressure after the FOMC modified the outlook from “ongoing rate increases” to “some additional firming, suggesting the hiking cycle nears its end and helping major pairs continue higher against the beleaguered buck. Stocks rose initially but cratered along with the dollar as JP noted the Fed expected no recession this year. At the same time, JY somewhat reversed previous statements that boosted confidence in the banking sector in response to yesterday’s rally.

Chart: USDJPY

Key Factors for Today

• Dollar tumbles despite Fed hike after FOMC alters statement
• UK inflation acceleration forces BOE to hike, Cable soars
• Lagarde sees no indication that inflation is slowing down, adding to hawkish rhetoric
• Crude inventories up and OPEC keeping production cuts make a lousy recipe for WTI
• RBNZ ready to hike more if inflation expectations don’t come down

Fed Hikes But Modifies Statement, Driving Gold 1.50% Higher

Fed Chair Jerome Powell addressed the banking industry during the post-rate decision presser. He said that all depositors are safe and noted that credit tightening was equivalent to a rate hike. Meanwhile, Treasury Secretary Janet Yellen told a Senate Appropriations subcommittee that “blanket” deposit insurance had not been discussed or considered, doing her part in driving stocks down due to what appeared contradictory to Powell’s remarks. Gold gained 1.50%, back on its way to 2k and above.

UK Inflation Sends Cable 1% Higher Ahead of BOE Decision

UK annual CPI inflation saw the first acceleration in four months to 10.4% compared to the 9.9% expected and 10.1% prior. The key core rate advanced to 6.2% compared to expectations of staying at the 5.7% prior rate. The main drivers were higher food and non-alcoholic beverage prices, which rose to a 45-year high. Cable traded as high as 1% to a 7-week high on Wednesday on expectations that the BOE will have to hike but receded later in the session, settling at $1.2260. The pair is near yesterday’s peak this morning, eying $1.24.

EUR/USD Gains 0.85% as ECB Sees Inflation Entrenched

ECB President Christine Lagarde repeated that she saw no clear evidence that inflation was trending downwards. The inflation outlook, with no tradeoff between prices and financial stability, guided that policy. ECB’s Joachim Nagel (Germany) echoed the President’s statement and added that once the ECB stops hiking, it would have to fight calls to cut them. EUR/USD rose 0.85% to $1.0857, a 4-week high, and heads towards $1.10 this morning, provided bulls hold the grip above $1.09.

Crude Inventories Rise, Reversing Nearly All 2.70% Gain

The DOE reported a 1.1M bbl build in crude inventories compared to a drawdown of 1.5M bbl expected. Moreover, press reports suggested OPEC was likely to keep its current production cuts until the end of the year. WTI was seen as high as $71.30 per barrel on Wednesday, 2.70% higher, and although recording a 3-day streak, prices reversed near the open by the closing bell. The commodity will likely stay under pressure below $70 per barrel.

RBNZ Threatens More Rate Hikes, Kiwi Up

The Chief Economist at the RBNZ, Paul Conway, said that if expectations for inflation don’t come down, the Reserve Bank would have to do more on interest rates. Kiwi ended Wednesday 0.45% higher, despite the spike 1.50% higher to $0.6283, but it continues to rise this morning. Reclaiming 63 cents might see increasing bets for higher levels.

On The Docket

• BOE rate decision
• Initial job claims
• Home sales
• EIA gas stocks
• EA consumer confidence
• ECB Lane speech
• BOE Mann speech
• Kansas manufacturing index
• EC meeting

Fx 1-Day Relative Performance (USD)

• Aussie and kiwi 0.83% and 1% higher
• Pound and euro are up by 0.55 and 0.62%
• Loonie and swissy are up by 0.43% and 0.30%
• The Japanese yen is also higher, by 0.469%
• Gold and silver 1.67% and 1.62% up
• Crude and brent 0.76% and 0.87% lower
• Natural gas is up by 2.40%