Can Stock Market Recovery Survive FOMC?
Risk Rebounds on Wednesday
US stocks are roaring back this week ahead of the FOMC later today. S&P futures are up .7% on the day, no wup more than 3% off the Monday lows. The move higher comes amidst cooling oil prices and a softer USD in recent days. Oil prices have been a key driver of USD since the outbreak of the Iran war with higher prices fuelling inflationary fears and feeding into hawkish Fed expectations, driving USD higher. Similarly, any cooling off in oil prices has seen USD trading lower.
Middle East Oil Exports Returning
This week, news that Iraq has resumed exporting oil via Turkey’s Ceyhan port has helped tame demand pressures somewhat. Additionally, news that Iran is still exporting millions of barrels of oil per day through the Strait of Hormuz (while blocking western distribution through the channel) is also keeping prices capped for now. With initial supply disruption fears around the Strait of Hormuz being closed easing slightly, oil prices have softened which is feeding into better risk sentiment mid-week.
Two-Way Risk Into FOMC
Looking ahead today, focus will be on the FOMC and the extent to which the Fed makes any hawkish shift in its messaging. Traders have already pushed out easing expectations from June to October since the war began, and wil now be looking to see if the Fed still forecasts any easing this year. If easing signals are pushed back to next year, this should weigh on stocks near-term. Additionally, if the Fed takes a firmly hawkish tone today, warning over inflationary risks, this could furtehr weigh on risk sentiment. Alternatively, if a cut is still projected this year, or early next year, along with a more neutral message (less inflationary fear), this could spark a furtehr rally in stocks, keeping USD skewed lower for now.
Technical Views
ES (S&P Mini Futures)
The rally ha seen price bouncing back up to test the 6,811.25 level. With is a key near-term pivot for the market. If bulls can get back above this level focus will turn to 6,949.75 as the next bull target. To the downside, 6,587.50 remains the key support to watch.
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With 10 years of experience as a private trader and professional market analyst under his belt, James has carved out an impressive industry reputation. Able to both dissect and explain the key fundamental developments in the market, he communicates their importance and relevance in a succinct and straight forward manner.