Fed indicates inflation could come down soon fueling risk on rally. Big tech earnings kick off; Facebook soars 19% after hours

What’s happening in markets

Fed turns somewhat dovish; triggering a risk-on rally 

The Federal Reserve made its eight rate hike. Today it increased its benchmark interest rate by a 0.25% (25bps) as expected. The market was looking for signals the Fed is at the end of its cycle. And the market received indications the end could be in sight.

The Fed statement alluded to hikes slowing, as it said inflation “has eased somewhat but remains elevated.” Later, Fed Chair Jerome Powell said he sees inflation coming down soon. 50% of inflation is ‘disinflationary’ he said. And that’s positive. So this suggests policymakers are getting more confident price pressures peaked and are rolling over.

What to watch; with potential trading and investing ideas

Positive reaction to Fed: Risk on rally till data proves otherwise

The S&P500 reversed its fall, gaining 1.1% to close at its highest level since August 26. From a technical perspective, a golden cross is forming which could trigger quant trader buying. That’s something to watch, which could trigger more upside. The Nasdaq recovered from its earlier loss on Wednesday after the Fed Chair spoke, gaining almost 3% from its low of the day, before ending 2% up.

Facebook kicks off major tech earnings with a bang; Perhaps a good sign of what we can expect from Apple, Amazon and Google

Facebook shares surged 19% after hours, after announcing a $40 billion boost to its share back, as it’s guiding for stronger revenue that expected in Q1 this year, seeing revenue hit $26 to $28.5 billion, with that bulls eye target being more than expected ($27.25 billion). Q4 revenue beat expectations, falling to $32.2 billion, vs $31.7 billion expected. The business sees outgoing expenses dropping more than expected (to $89-95 billion) and lower capital expenditure. Also on the positive, FB’s daily users improved more than the market expected. From a technical perspective Meta shares closed above their 200-day simple moving average. It also appears, a golden cross is forming which could trigger quant trader buying. That’s something to watch, which could trigger more upside.

Risk on assets such as tech stocks are charging today, with the sector up 2.8% while gold equities are being bid rising 5-6%, after the gold price rallied 1%. Long term investors will be watching the tech index, given it’s down 30% from its high. Also consider the overall market, the ASX200 has a PE at 15.2 times. Cheaper than Nasdaq’s 57 times earnings. And S&P500’s earnings multiple of over 19 times.

Commodities, are mixed but strength picked up after Jerome’s more dovish tone

• Gold (XAUUSD) is up 1.1%; to $1949, remembering gold historically outperformers equites, when the Fed pauses rate hikes. The last time the Fed paused in 2019 the gold price rallied over 60% to a new high.
• Crude oil (CLG3 & LCOH3) is down 2.6% $76.84. We argue as we've been highlighting and as Ole mentioned on yesterday’s podcast, the fundaments are showing positive signs oil demand has been rising over the last several weeks. However, most of selling in oil, has been from hedge funds closing positions that they opened over the last few months. We argue oil prices are underpinned higher.
• Copper is down 0.9% and recovered from its earlier selling after the Fed Chair spoke. 

In FX, the US dollar index falls to new cycle lows after the Fed Chairs speech

The DXY is now down 11% from its high. The Aussie dollar against the US (AUDUSD) rallied 1.1% to 0.7136. So that’s a pair we continue to watch.

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