During the first week of the new year, investors look for clarity from the world’s global institutions. The latest report that grabbed the attention of market participants was the Federal Reserve’s Meeting Minutes released last night. The Minutes Meeting is a written report released about three weeks after the latest Fed meeting and is mainly used to obtain signals regarding future interest rates.
Fed’s Meeting Minutes
The report advised the market that the Fed would continue increasing interest rates at the next rate decision by 0.50%, and that rates would stay at that level for “some time”. This month market participants are no longer evaluating whether the Fed would hike 50 or 75 basis points. The market is almost certain the Fed will hike 0.50% in February and that it will stop hiking in the next 2-3 months. The question is whether the Federal Reserve will hike one last time or if we have 2 more hikes left before a pause. This will massively affect the price of the US Dollar and global stocks.
Currently, economists have advised they do not believe the Fed will keep interest rates as high considering the expected economic stagnation or decline. This is one of the reasons the stock market has remained strong and has ignored the Fed’s next rate hike. Yesterday’s report also attempted to force investors to take their restrictive policy more seriously.
Last year was the worst year for the stock market since 2008, but investors are looking to see how a potential end to the restrictive policy will affect performance. The stock market has also been influenced by the upcoming earning season which will also include Christmas and seasonal spending. This is another reason why some market participants have refrained from selling. However, investors will now be turning their attention to tomorrow’s employment figures and next week’s inflation rate.
Tomorrow’s NFP announcement is expected to be in the region of 200,000 to 215,000. The Unemployment Rate is expected to remain at 3.7% as in the previous 2 months. Negative employment figures can possibly indicate a less restrictive monetary policy. Next week’s CPI is expected to again continue the recent slowdown.
Lastly, the price of crude oil has also struggled in the second half of 2022 and especially over the past week. The price of Crude Oil has had its worst run since March of last year and has declined by 8.50% over the past 48 hours. The reason for the decline is due to demand and economic concerns weighing heavily on prices. However, traders should be cautious that the reopening of the Chinese economy and possible fiscal support does not turn the cards.
DAX
The price movement of the DAX is specifically interesting as are the signals from technical analysis. The instrument has also experienced divergence on most oscillators after experiencing almost a 5% gain. The price of the DAX increased even as the market entered into the US session and the European Session had ended.
The price movement continued to increase in value even after the instrument obtained overbought signals from the RSI. However, the price last night and this morning have indeed fallen into a retracement. Currently, technical analysis is indicating a loss of momentum and a retracement in the short term. Though traders can use the 14,504 level as a bullish breakout point or 14,391 as a bearish breakout.
Many economists are expecting the technology market to specifically take a hit in the first half of 2023. Amazon has advised they plan to decrease their workforce by 18,000 employees. Other technology companies have also made similar confirmations. This can influence the DAX in two opposing ways. The declining technology market can dampen sentiment for the whole stock market which would be negative for the DAX. Alternatively, the lack of demand in the NASDAQ will trigger more demand for alternatives such as the DAX and other indices.
Lastly, the index was significantly supported by the decline in inflation across most European countries. The unexpected decline in Germany and France specifically supported the recent bullish price movement.
Summary:
- The Fed indicates another 0.50% rate hike for February.
- The Fed’s Minutes Meeting confirms that the restrictive policy will remain in place for some time.
- US stocks ignore the Fed’s latest rate hike indications but remain unstable.
- Stocks refuse to decline as investors hold onto stocks ahead of the earning season.
- DAX is supported by the latest EU inflation figures which show an unexpected decline.
