Equities report: Equity traders brace for Fed impact

US stock markets managed to contain their fall last week, found support and rebounded to higher ground, as the turmoil from sequential bank collapses and the fear for contagion across the globe, hurt the greenback which was translated into increased risk-taking behavior from equity traders.  In this report we aim to present the recent fundamental and economic news releases that impacted the US stock markets, look ahead at the upcoming events that could affect their performance and conclude with a technical analysis.

Markets await patiently for the Fed’s decision

In today’s American session the star of the day will be the FED’s interest rate decision and the market’s expectations seem to have solidified. It’s characteristic that FFF are predicting an 80% probability of a hike by 25 basis points. There was a lot of speculation in regards to how the FED would react following the mini-banking crisis that plagued the US economy in the past few weeks. Most notable were SVB e ainda Silvergate whose collapses spread contagion fears across numerous banks in Europe, such as Credit Suisse which led to its acquisition from its long-term rival UBS. The implications were potentially catastrophic, as many feared this could upend strategic plans laid by the ECB e ainda FED in order to combat inflation. However, following the ECB’s decision to hike rates by 50 basis points and the swift action followed by SNB for Credit Suisse, the market anticipates that the FED could follow suit with its respective tightening plans, not of the same magnitude, however. Hence instead of not staying on hold and in fear of worsening the already delicate financial situation, the Fed may opt for the moderate 25 basis points hike scenario, so that the bank may continue to pursue its inflationary goal of 2%, without overstressing the Banking industry. Besides the Fed’s interest rate decision as such, we also highlight the release of the accompanying statement which includes its forward guidance. Should the bank ease its aggressive hawkish stance and show some hesitation about its future rate hiking path, we may see the USD weakening, a scenario that highlights the possibility of an interest rate hike turning to a dovish hike. That therefore could inadvertently lead on equity traders to indulge in riskier behavior, and we may see stock markets head to higher ground. Furthermore, markets will also focus on the release of the new dot plot, which is expected to broadcast where FOMC policymakers see the terminal rate peak. Should the terminal rate remain above market expectations we may see a bullish sentiment surrounding the USD, whereas downplay optimistic scenarios for a rally in the equities sectors. Also, we note the release of the bank’s new economic projections. It will be interesting to see whether the Fed anticipates a recession in the US economy or not. Should the projections point out that the central bank foresees that the US economy is to avoid a recession or even encounter a rather shallow one, that may allow for the USD to gain somewhat. Last but not least, we also note Fed Chairman Jerome Powell’s press conference post the decision. The Fed’s Chairman comments after a decision are notorious for igniting market volatility and outright cause a reversal in market sentiment, therefore we advise caution in regards to USD-linked pairs. Should the Fed Chairman actually sound hawkish enough, we may see the greenback getting some support and highlighting once again that the decision may have ripple effects into equities markets depending on the outcome.

Análise técnica

#US30 4Hour Chart

Support: 31800 (S1), 31100 (S2), 30300 (S3)

Resistance: 32600 (R1), 33500 (R2), 34500 (R3)

Looking at #US30 4-hour chart we observe the index consolidating around the 31800 (S1) support base over the past week and bouncing higher, closing in the 32600 (R1) resistance barrier ahead of today’s Fed interest rate decision. We hold a sideways bias for the index, ahead of today’s decision, awaiting for the results and advising caution. The RSI indicator below our 4-hour chart that currently registers a reading of 58, which showcases slight bullish sentiment in favour of the index, yet the price action remains bounded between the descending channels’ bounds. Should the bulls take over, we may see the break above the 32600 (R1) resistance level and the upper bound of the descending channel alongside the move of the index closer to the 33500 (R2) resistance barrier. In an extremely volatile scenario we may also see the price action rising closer to the 34500 (R3) level. Should the bears reign over on the other hand, we may see the definitive break below the 31800 (S1) support level and the lower bound of the descending channel, alongside the possible break below the 31100 (S2) support base. Under extreme scenario we may also see the price action heading lower, closer to the 30300 (S3) support range which was last visited during October of 2022.

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