US open: Wall Street set to extend losses after the Fed's hawkish shift

Stocks are sent to open lower and the USD builds on gains after the Fed surprised the market with a hawkish shift. Jobless claims rose for the first time since April.

USA (2)

US futures

Dow futures -0.34% at 339213

S&P futures -0.4% at 4207

Nasdaq futures -0.5% at 13913

In Europe

FTSE -0.7% at 7140

Dax -0.05% at 15700

Euro Stoxx -0.17% at 4149

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Mixed data shrugged off, all eyes on the Fed

US stocks fells in the previous session and look set to extend those losses today after the Fed took a sudden hawkish turn.

The Fed upwardly revised growth and inflation forecasts as it expects the US economy to recovery at a faster rate. In addition to starting a discussion over when to start tapering asset purchases, the Fed also, indicated that it might hike rates twice in 2023, sooner than the initial 2024 kick off. If that wasn’t enough 7 policy makers (of 17) even pointed to a 2022 start to hiking rates.

The announcement stunned the market sending bond yields shooting higher, the US Dollar to a two month high and equities lower.

Jobless claims unexpectedly rise

Jobless claims came in weaker than expected. Initial claims unexpectedly rose to 412k last week, up from 375k the week before and well above the 359k forecast. This was the first rise in claims since April. The data comes after two months of weaker than forecast non farm payroll numbers. Whilst the week jobless claims data hasn’t caused a reaction in the market, one weak print by no means constitutes a new trend. However, too many more weeks of weakness could start to unnerve investors.

Where next for the Dow Jones?

The Dow Jones was the hardest hit by the Fed’s shift. The selloff in the Dow is an extension of the weakness that we saw earlier in the week and has taken the index below its ascending trendline dating back to March 2020, for the first time. The index found support at 38000 and is attempting to crawl higher, although the MACD is supportive of further declines.

Any meaningful recovery would need to retake the ascending trendline at 34000, round number. Beyond here resistance can be seen at 34200 the low June 14 & 15. It would take a move above the 200 sma on the 4 hour chart at 34350 to negate the current downtrend. Failure to retake the trendline could see sellers target 33800 yesterday’s low ahead of 33650 and 33290 the May low.

FX – USD hits 2 month high, EUR slumps on divergent central banks

The US Dollar has surged higher following the Fed meeting. The prospect of tighter monetary policy sent the greenback to a two month high.

EUR/USD is underperforming its major peers. The Fed’s hawkish turn contrasts deeply with the ECB’S dovish stance in its meeting last week. The Euro didn’t even find solace in stronger than forecast core inflation data. Core CPI rose 1% YoY in May, ahead of the 0.9% forecast. CPI hit 2% YoY, in line with estimates and hitting the ECB’s target level.

GBP/USD -0.2% at 1.3955

EUR/USD    -0.5% at 1.1936

Oil slips but uptrend remains

Oil have picked up off session lows and are attempting to head back onto positive ground. Oil prices had slipped lower overnight, weighed down by the weaker US Dollar after the Fed’s surprise hawkish turn. The move lower has barely touched the sides of oil’s recent rally amid rising demand expectations.

Losses were also capped by a bigger than forecast draw on crude stockpiles. According to the EIA report crude oil inventories declined by 7.4 million barrels.

Despite the slight pull back the upward trend in oil remains intact.

US crude trades +0.01% at $91.90

Brent trades -0.1% at $73.71

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Looking ahead

04:00 BoJ Interest Rate Decision

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