Risk appetite takes a strong hit as the US Federal Reserve signals a reluctance to cut rates deeply over 2025.
- Yesterday’s policy meeting of the US Federal Reserve saw a third consecutive rate cut of 0.25%, which was so universally expected as to be a given. The focus instead was on the Fed’s inflation outlook and their indication of a plan for rate cuts going into 2025. The Fed made it clear that although inflation appears to be controlled, it “remains somewhat elevated”, and further progress against it will need to be demonstrated before more cuts can be made. This has led the market to now expect only 2 rate cuts of 0.25% as likely to happen over 2025. This has sent US stock markets falling sharply and the US Dollar gaining very firmly.
- The retracement in US stock markets is fast, and deep enough to shake out most trend traders in the case of the S&P 500 Index. Risk appetite has been hit quite hard, which has also sent Bitcoin sharply lower, trading down near $100,000 earlier.
- The Bank of Japan held its interest rate steady, as expected, although there was some speculation a rate hike might happen. This mild dovish surprise saw the Japanese Yen weaken a little.
- The Brazilian Real fell strongly to reach a new all-time low yesterday, putting the USD/BRL exotic currency pair in focus. The bullish breakout is a bit choppy but is looking increasingly poewrful. The Real is hit on bad Brazilian fiscal news which has led the central bank to hike rates, which President Lula has spoken again. Lula’s allies are expected to take effective control of the bank in 2025 so there are fears the bank may become reluctant to hike rates.
- Cocoa futures rose again yesterday to reach a new all-time high price just below $13,000 per ton. Cocoa has seen a very strong increase in value (approximately a 40% gain) over the past few weeks, and the market will remember the spectacular rally in Cocoa in 2023 which saw the price of the superfood triple within only 4 or 5 months. Trend traders will be interested in being long of Cocoa futures. Unfortunately for retail traders, the smallest Cocoa future available has a position size of $100,000 but there is a Cocoa exchange-traded commodity (ETC) ticker COCO available on the London Stock Exchange which is very affordable. The “ETC aims to replicate the Bloomberg Cocoa Sub Total Return Index (BCOMCCTR) by tracking the Bloomberg Cocoa Sub Excess Return Index.”
- In the Forex market, since today’s Tokyo open, the Euro has been the biggest gainer and the Japanese Yen the biggest loser. The EUR/USD currency pair remains in a valid long-term bearish trend after making a strong bearish move down after the Fed meeting to trade not far from the multi-year low above $1.0300. The NZD/USD currency pair and the AUD/USD currency pair made new 2-year lows a few hours ago, while the USD/CAD just hit a new 4-year high. The commodity currencies (AUD, CAD, NZD) are weak, and the US Dollar is strong.
- UK CPI (inflation) data yesterday rose to 2.6% annualized, as widely expected.
- There are two high-impact data releases scheduled for today:
- The Bank of England’s policy meeting, which is expected to leave interest rates unchanged at 4.75%.
- US Final GDP, which is expected to remain unchanged at 2.8%.
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