NASDAQ Index, SP500, Dow Jones Analysis – Stocks Retreat From Session Highs As Regional Banks Fall

Key Insights
SP500 failed to settle above the 4000 level.
NASDAQ tested the major resistance level amid strong demand for tech stocks.
Dow Jones faced resistance at the 20 EMA and pulled back.

SP500 pulled back towards 3960 after an unsuccessful attempt to settle above the 4000 level. Today, traders focused on Initial Jobless Claims and New Home Sales reports.

Intial Jobless Claims report indicated that 192,000 Americans filed for unemployment benefits in a week, while New Home Sales grew by 1.1% month-over-month in February. The strong economic data provided material support to stocks at the start of the trading session.

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Wall Street digests Powell's comments on banks, rate cuts and inflation

U.S. futures trade modestly higher in Thursday’s premarket session as investors digest Fed Chair Powell’s comments about the central bank’s future actions.

The U.S. central bank hiked its key interest rate by 25 basis points to a range of 4.75% to 5% as widely expected, but stocks fell about 2.5% off their session highs after Powell reiterated that the inflation fight isn’t over.

“The process of getting inflation back down to 2% has a long way to go and is likely to be bumpy,” Powell told journalists.

Moreover, his comments that “rate cuts are not in our base case” for 2023 also triggered a selloff in stocks. Another reason why shares rotated lower yesterday is Treasury Secretary Yellen’s comments that the authorities are not considering blanket insurance for all bank deposits.

According to Investing.com’s Fed Rate Monitoring Tool, traders are assigning a 56% possibility that the Fed would hike by 25 basis points in May.

The updated ‘dot plot’ shows interest rates peaking at 5.1% at the end of 2023. The media for 2024 now sees rates at 4.3%, which translates into 75bps rate cuts next year instead of the 100bps indicated in December.

What Fed will do next?

Here’s how top Wall Street economists saw the FOMC statement and Powell’s comments.

Citi: “While we also expect a drag on growth from tightening credit conditions, inflation data in particular over the next few months should remain uncomfortably strong, making it difficult for the Fed to pause rate hikes. We continue to expect a terminal rate of 5.50-5.75%, although like the Fed will remain highly data dependent.”

JPMorgan: “We continue to look for one more 25bp hike in May and an extended pause before the Fed eases in 2Q24.”

UBS: “We think we saw a more cautious central bank than the one that front-loaded rate hikes in 2022. As a result, we are going to lower our previous projection of the terminal rate by 25 bps and assume no June rate hike, due to the FOMC's caution and due to the weakening economy and softening inflation data we project. In other words, we assume one more rate hike at the May FOMC meeting, by 25 bps.”

BofA: “We agree that some amount of unexpected tightening in bank lending standards may be forthcoming. In other words, the US economy may see tighter lending standards than what could be explained by macroeconomic fundamentals. If so, our view is that it could indeed substitute for further rate hikes. Hence, we no longer expect a 25bp rate hike in June and now foresee a terminal target funds rate of 5.0-5.25% reached in May.”

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GOLD PRICE FORECAST:

Gold prices rise following the Fed’s dovish hike at its March FOMC meeting
The U.S. central bank raised rates by 25 basis points, but signaled its tightening cycle is coming to an end
The fundamental outlook remains positive for gold

Most Read: Gold Trading - Three Top Tips for Trading Gold

Gold prices surged on Thursday amid U.S. dollar weakness after the FOMC delivered a dovish interest rate hike and signaled that its tightening campaign may be nearing its end. In late morning trading, XAU/USD was rallying about 1% to $1,986, inching ever closer to its 2023 highs, just above the psychological $2,000 level set this past Monday.

Recent banking sector turmoil has led the Fed to adopt a much more cautious stance and to project a less aggressive hiking cycle than telegraphed just a few weeks ago, when Powell dropped a hawkish bombshell before Congress. In fact, the FOMC only expects to raise borrowing costs one final time this year to 5.00-5.25%, well below the 5.70% peak rate anticipated by the market earlier this month.

The idea that the terminal rate is within reach, coupled with growing speculation that the central bank will ease policy shortly thereafter, is likely to be bullish for non-yielding assets, including precious metals. This means that gold could remain in an upward trajectory over the medium term, especially if financial turmoil resurfaces and threatens to create systemic risks.

In terms of technical analysis, if gold extends its advance in the coming sessions, the first ceiling to consider appears in the $2,000/$2,015 region. On further strength and a decisive breakout, the focus shifts to channel resistance at $2,050, followed by $2,078, last year’s high. Conversely, if sellers return and spark a pullback, initial support comes at $1,975/$1,965. Below that, the next area of interest lies at $1,920 and $1,900 thereafter.

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GBPJPY SEEL 159 800

TP. 159 600
TP. 159 400
TP. 159 200

SL 161 600

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#xauusd Buy NOW 1979

☑️TP. 1985
☑️TP. 1990
☑️TP. 1996
☑️TP. 2005

✖️SL. 1965

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