Headlines

* US futures rise as Fed minutes show most officials favoured 25bp rise

* Dollar nears six-week highs after Fed inclined to more hikes to curb inflation

* Nvidia posts better than expected revenue and income, boosted by A.I chips

* AUD rebounds after hitting six-week low, NZD outperforms

FX: USD advanced to a high of 104.59, not far off the last week’s spike high at 104.66. The gains came after hawkish-leaning FOMC minutes. The benchmark US Treasury 10-year yield made another fresh cycle high at 3.968% before paring gains. The reaction in bond markets after the minutes was relatively limited.

EUR dipped to 1.0598 but currently trades above the 1.06 handle. GBP traded in a 101-pip range between 1.2034 and 1.2135. Sterling underperformed yesterday after reports that a Northern Ireland protocol deal is unlikely to be reached this week. USD/JPY consolidated near recent highs. It printed an inside day after posting a new top at 135.22 on Tuesday. AUD has bounced off its 200-day SMA now at 0.6800. NZD is trading sideways after tapping strong support at 0.6191 last Friday.

Stocks: US equities closed a mixed bag. The benchmark S&P 500 lost 0.16% as it closed below 4,000 again. The blue-chip index touched the 50-day SMA at 3,979. The tech-heavy Nasdaq 100 edged 0.05% higher. The Dow slipped 0.26%. Stocks unwound earlier strength after the slight hawkish tilt from the stale FOMC minutes. These moves came after Wall Street recorded its worst trading session in two months.

Asian stocks lacked firm direction and were mostly rangebound. Conditions were thinner due to the holiday in Japan. The Kospi was the biggest gainer amid currency weakness. The Hang Seng was lacklustre with tech stocks initially bid after China vowed to improve measures to cut taxes and fees.

US equity futures are in the green led by Nasdaq futures (+0.77%). Nvidia earnings topped forecasts which boosted its shares by nearly 9% after hours. European equity futures are indicative of a higher open.

Gold edged off the lows as the dollar pared some of the gains from the FOMC minutes.

Event Takeaway – FOMC not done with hiking

We mentioned yesterday when previewing the Fed minutes that they would be stale. Three weeks is a long time in markets when policymakers are data dependent. And we’ve had bumper US data and more hawkish Fedspeak since the meeting. The minutes did reveal that “a few” participants had favoured a larger 50bp hike. All officials did expect further rate rises despite the fact the market had speculated on a pause in March before the meeting.

Much has changed since then with strong data to the fore. Powell had downplayed the risk of easing financial conditions, but they have tightened in recent weeks. There was also no mention  of disinflation, versus 91 instances of inflation. The Fed is set to hike at the next two meetings at least, with data deciding if larger hikes are appropriate. The DXY’s next upside target is around 105.

Chart of the Day – Dax consolidates near 12-month high

The German Dax stock market is vying with the Nasdaq for positive performance this year. Both indices have gained around 10% in 2023. The Dax is up more than 30% since its lows in October. Peak pessimism in the eurozone saw German’s top 30 companies hit a low of 11,809.

Since then, the outlook has brightened considerably with recent sentiment and PMI data picking up. But the economy is not out of the woods yet. Geopolitical tensions and the Ukraine conflict loom large. An additional headwind is the ECB which is seen hiking rates to 3.75% from 2.5%.

Prices in the Dax are currently tracking sideways with support at a long-term Fib level at 15,334. Lose this and we are back into January’s range with the low around 14,900. The cycle high of the recent move is 15,656.