US stocks failed to keep up with the European optimism on the back of rising bets that the Federal Reserve (Fed) could hike the interest rates to 6%.

In fact, option traders are piling into bets that the US rates could peak at 6%.

Plus, the surprise 50bp hike from Mexico’s Banxico, on the back of unexpected – and unwelcomed inflation jump since the end of last year, also raised worries that the US could experience a similar uptick in inflation, and, may have to raise rates higher.

And the strong US jobs market, the latest recovery in energy and commodity prices on the Chinese reopening optimism, and the sudden jump in second-hand car prices are red flags…

The S&P500 fell 0.88% yesterday, and Nasdaq retreated 0.90%. Topsellers will likely remain in charge of the market on the possibility that maybe inflation in the US may have not eased to 6.2% as expected by analysts.

But nothing is clear before next Tuesday’s CPI release, in terms of Fed expectations.

What’s interesting though, is that the hawkish Fed bets don’t translate fully into the US dollar valuation. The US dollar remains under pressure despite the positive pressure on the US yields. And the 50-DMA offers remain particularly solid in the US dollar index.

Finally, Bitcoin fell 5% on news that Kraken stops staking. Negative pressure in tech stocks could further weigh on appetite.

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US equities fell yesterday on the back of two important factors: hawkish comments from the Federal Reserve (Fed) members, and the unexpected surge in the American used car prices.

The S&P500 fell more than 1%, while Nasdaq slid around 1.80%.

Inside Nasdaq, Google had a particularly rough day, to say the least. The company posted a Tweet showing Bard in action, and the tweet went wrong, as Bard gave the wrong answer!

The stock price slumped by more than 9% at some point.

Microsoft on the other hand was upbeat on the news, and its valuation shortly surpassed the $2 trillion mark.

Elsewhere, Uber jumped more than 5.5% on stronger than expected results. Disney also jumped by more than 5% in the afterhours, after reporting better than expected results, and the promise to slash $5.5 billion in costs, along with 7000 jobs.

The US futures are in the positive at the time I am talking here, but the bears are not far away.

In the FX, the US dollar remains upbeat, but the 50-DMA offers remain a solid resistance to a bullish breakout. Likewise, the EURUSD remains bid at around the 50-DMA, and the dollar-yen remains offered into the 50-DMA. So that 50-DMA mark is the key resistance that must be cleared to set the dollar bulls free for further appreciation, and de-block the situation in the FX space.

In energy, US crude extended gains above its own 50-DMA yesterday. Could it extend gains higher, and by how much?

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Another hawkish speech from the Federal Reserve (Fed) Chair Jerome Powell turned into a risk rally yesterday. Equities gained, and the bond yields fell.

Yet, yesterday’s speech from the Fed Chair Powell was hawkish. He said that the Fed may hike the rates more than what’s priced in if the jobs market remains unexpectedly strong.

The S&P500 still eased when Powell said they need ‘substantial evidence’ that inflation slowed, but finally, the index erased gains and ended the session by 1.30% higher. Nasdaq jumped more than 2%. The US 2-year yield eased and the US dollar first jumped, then eased.

The EURUSD tipped a toe below its latest bullish trend base, and below its 50-DMA yesterday, and the pair is just at the edge of bullish trend again this morning, with no guarantee that it won’t slide further.

Cable rebounded before hitting its 200-DMA, at 1.1950, and is back above the 1.20 mark this morning.

BP shares price jumped nearly 8% to above our mid-term 500p target, after reporting report profit, dividend raise and share buyback, while crude oil jumped more than 4% as API revealed a 2-mio-barrel decline in US stockpiles.

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Rising geopolitical tensions between the US versus China and Russia, and the hawkish Federal Reserve (Fed) expectations weighed on market sentiment at the start of the week. The US yields, the US dollar and gold gained, stock indices kicked off the week under selling pressure.

Fed President Jay Powell wills speak following a blowout jobs report, and US President Joe Biden will deliver his State of the Union speech following the Chinese spy balloon incident.

Hence, there is little to cheer.

The US 2-year yield is above the levels it kicked off the year, the US 10-year yield is following suit, and the dollar is sharply bid this week, the dollar index gained nearly 3% in three sessions.

Gold is slightly better bid on the mounting geopolitical tensions, but the rising US dollar and the rising yields will likely cap gains into the $1900 per ounce.

In the currencies markets, the EURUSD tanked to 1.0710 yesterday, the USDJPY jumped to 132, Cable consolidates a touch above the 1.20 mark, while the Aussie-dollar is better bid today as the Reserve Bank of Australia (RBA) hiked the rates by 25bp points as expected, and said that more rate hikes could be down the road, as inflation remains high and sticky.

In indices, the S&P500 retreated by 0.60% yesterday, Nasdaq 100 lost 0.87%.

In technology, Google announced its own conversational AI called Bard AI in response to the Microsoft-supported ChatGPT. Microsoft announced a mystery event where it could talk about ChatGPT, while Baidu announced that it will roll out its own AI in March jumped more than 15% in Hong Kong.

In energy and commodity space, the Indian Tata steel announced an unexpected loss last quarter and the shares slipped more than 4%. BP results were mixed.

Turkish construction stocks rose before the horrified eyes of those who were watching the earthquake news along with the market news, as more than 6000 buildings collapsed, killed thousands.

Crude oil rebounded past the $75pb.

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Very strong US jobs data released last Friday hit the Federal Reserve (Fed) doves, sent equities lower, the US yields and the US dollar higher.

And the latest US jobs data will likely support the US dollar bulls this week, as we don’t have much on the economic calendar that could temper Friday’s monstrously strong NFP read, and remind us that the US economy is still slowing.

Plus, the fresh selling pressure on the Japanese yen will likely give an extra hand to the Fed hawks, on weekend news that the potential new Bank of Japan (BoJ) Governor, Masayoshi Amamiya will be dovish.

In the light of the latest macroeconomic developments, a revision to medium term outlook is necessary.

• The dollar-yen’s latest jump above the 130 mark could be sustainable in the short to medium run.

• The EURUSD traders may be happy to call it a good trade and retreat to the sidelines.

• Cable could sink into bearish consoldation zone.

Elsewhere, the Adani selloff enters the third week, and things go from bad to worse as in increasing number of banks don’t accept Adani holdings as collateral anymore.

The Chinese spy balloon that was flying over some strategic points in the US renewed tensions between US and China, and that could throw a floor under the gold’s selloff.

And US crude is back into last year’s bearish trend, with however risks of tight supply, and Chinese reopening hanging in the air.

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Yesterday was, again, a fantastic day of trading for equities, as the less hawkish than expected tone from the European Central Bank (ECB) and the Bank of England (BoE) meetings joined the optimistic vibes from the Federal Reserve (Fed) Chair Jerome Powell’s ‘disinflationary process’ mention a day before, and all that combined with Facebook’s best rally in almost a decade painted the market in the green.

The S&P500 gained around 1.50%. Nasdaq 100 jumped more than 3.5% and entered bull market as Meta jumped more than 23%.

But today will probably not be as fantastic as yesterday, as Apple, Amazon and Google announced earnings after the bell yesterday, and they all disappointed.

Maybe, the again-important US jobs data could temper the earnings-triggered weakness – if of course the NFP number, and more importantly the wages growth are sufficiently soft to keep the Fed doves in charge of the market.

Elsewhere, the European Central Bank (ECB) and the Bank of England (BoE) raised their rates by 50bp yesterday, but Lagarde sounded much less aggressive than the December meeting.

The EURUSD sold off.

But I believe that the euro’s recovery hasn’t ended just yet, as we see the end of the tunnel for the Fed – as the Fed rates approach the 5% mark, while we don’t yet see the end of the tightening tunnel for the ECB.

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‘It is gratifying to see the disinflationary process now getting underway’ said the Federal Reserve (Fed) President Jerome Powell at his press conference yesterday.

‘Disinflation process is getting underway’.

That was the major - and the only take - of his speech yesterday, and sent the markets rallying. The US yields fell, the S&P500 reversed course and rallied more than 1% higher, while Nasdaq jumped more than 2%. The dollar index slumped.

At the wake of the meeting, activity on Fed funds futures gives around 83% chance for the next FOMC meeting to deliver another 25bp hike, which would take the rates to 5% mark, as promised by Fed members.

And for equities, there is no reason to think that the bullish sentiment would reverse anytime soon.

What else?

Apple, Amazon, Google, Ford and Qualcomm are due to announce their earnings today.

The European Central Bank (ECB) and the Bank of England (BoE) are both expected to raise the interest rates by 50bp today But it won’t be the same 50bp hike.

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Weak economic data ran to the rescue of the equity bulls on Tuesday. The S&P500 rallied almost 1.50%, while Nasdaq jumped more than 1.50%.

The Federal Reserve (Fed) President Jerome Powell will be thrown to the spotlight today, to potentially shoot a couple of doves down to the ground.

But there is always a hope that the falling price and wages inflation will get the Fed to the pivot point.

The US dollar failed to consolidate and extend gains as the weaker economic data keeps strengthening the Fed doves’ hands.

The EURUSD eased as low as 1.08 yesterday, but the pair found buyers on the back of a strong looking GDP data from the Eurozone.

Elsewhere, today’s PMI data from China, released by Caixin, were not as rosy as the one compiled by China Federation and released yesterday.

And the barrel of American crude tipped a toe below the 50-DMA yesterday, as the API data revealed another big build in US inventories last week. The more official EIA data is due today, and the expectation is a 1 mio barrel decline, leaving room for further weakness in oil prices.

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Stock investors kicked off the week on a cautious note, as the Federal Reserve (Fed) is expected to kill joy when it announced its latest decision tomorrow, and earnings announcements may not save the day.

The S&P500 gave back 1.30% on Monday. US crude fell 2% yesterday and slipped below the 50-DMA this morning.

Interestingly, however, the latest news on the macro front is not bad. The Chinese reopening is now well reflected through the first set of economic data. Released today, both the manufacturing and services PMI jumped into the expansion zone.

And the cherry on top, the IMF raised its growth forecast for this year by 0.2% to 2.9% citing the resilience of US spending and the Chinese reopening.

This is the kind of news that the energy markets normally cheer. But not this time, apparently.

In the FX, the US dollar is gaining some positive momentum into the Fed meeting, as investors know that the Fed won’t declare victory over inflation despite the falling inflation, and position accordingly.

The Fed will certainly hike by 25bp, but there is little chance it will announce the end of the tightening. But more importantly, Jerome Powell will likely reveal whether we have one more rate hike, or two more rate hikes to go before pause.

And that simple ‘s’ could make all the difference.

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The new week kicked off with Chinese equities jumping into a bull market as traders returned from their Lunar New Year holiday.

The S&P500 and Nasdaq also freed themselves from the 2022 bearish trend, while global bond markets had their best January since 1990.

And if the equity rally is still on a shaky ground – due to fear that the slowing economy could hit company earnings – the future in bonds looks brighter.

In the macro front, the Federal Reserve (Fed), the European Central Bank (ECB) and the Bank of England (BoE) will be announcing their latest policy verdicts, between Wednesday and Thursday.

For the Fed, there is extremely little doubt that this week’s rate hike won’t be anything more than a meagre 25bp hike.

The ECB is expected to hike by 50bp this month, while we don’t know by how much the BoE will be raising its rates. In one hand, the BoE should continue fighting against inflation – which remains in the double-digit zone in Britain. On the other hand, the economic outlook for Britain is so morose – with country-wide strikes adding salt and pepper to the gloomy picture that Bailey cannot throw a series of 50bp hikes in the middle like Madame Lagarde.

Elsewhere, the Indian markets are being shaken by the Adani scandal. OPEC will meet this week, and big US companies including Amazon, Apple, Google, Meta, Exxon, Starbucks and Ford are due to announce earnings throughout this week!

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