Opening Bell: Stocks Climb On Dovish Fed; Yields Tumble; USD Consolidates


  • Global stocks climb on Fed’s dovish tone, Apple (NASDAQ:) earnings relief
  • Dollar, Treasury yields tumble post-Fed statements
  • U.S. stocks reach downtrend line since 2018 peak

Key Events

European stocks and futures on the and NASDAQ 100 extended an advance this morning as robust corporate results and a dovish tilt by the Fedprompted investors to increase risk.

Energy firms helped the climb for a third day after Shell (LON:) (AS:RDSa) posted solid earnings.

Meanwhile, Facebook (NASDAQ:)’s (NASDAQ:FB) upbeat earnings and record profits drove NASDAQ futures higher. Fourth quarter revenue of $16.91 billion marked a year-over-year growth rate of 30.4 percent for the social media giant, while other key metrics confirmed an upward trend: daily active users reversed the earlier downtrend to grow in every geographic area, after the measure had dropped in Europe and plateaued in the U.S.. Average revenue per user, or ARPU, at $7.37 crushed analyst estimates, marking a 21 percent increase from the previous quarter and a 19 percent annual increase.

Interestingly, the company also confirmed it is has hired three veteran privacy law activists—strengthening signs of a turn-around plan after last year’s user data scandal.

Earlier, during the Asian session, regional shares edged higher despite China’s manufacturing PMI contracting for the second consecutive month. While the reading confirmed a downward trend, investors may have focused on the fact that it also showed a slight improvement from the previous figures. Alternatively, they may have disregarded Chinese data altogether and focused on the Fed and Apple (NASDAQ:AAPL) tailwinds, as well as on hopes for a U.S.-China trade resolution.

China’s gained 0.35 percent and Hong Kong’s ticked 1.08 percent higher. Japan’s climbed 1.06 percent. South Korea’s retreated slightly (0.06 percent) while Australia’s underperformed, falling 0.37 percent.

Global Financial Affairs

In Wednesday’s U.S. session, shares opened higher on Apple’s earnings relief, and extended their advance on reassurance by the Fed that it will maintain a wait-and-see approach on its tightening path. Chair Jerome Powell said the central bank will be “patient” on future interest rate hikes and “flexible” on its path to reducing its balance sheet.

UST 10-year Daily Chart

UST 10-year Daily Chart

Yields on 10-year Treasurys tumbled after the Fed’s announcement as the outlook for interest rates shifted: a “patient” Fed suggests a slowdown in hikes, but a “flexible” Fed may even suggest rate cuts, suddenly making current yields more attractive for investors.

DXY Daily Chart

DXY Daily Chart

The dollar also slipped lower after the FOMC press conference, though it found support above its trend line since October as well as its 200 DMA. Today, the USD was seen wavering around neutral levels after extending losses.

Back to equities, all major U.S. indices hit eight-week highs yesterday, with the the S&P 500 leaping 1.55 percent. All SPX sectors climbed 0.77 percent or higher. Technology (+3.11 percent) rebounded from the previous day’s dismal performance, turning into Wednesday’s outperformer.

S&P 500 Daily Chart

S&P 500 Daily Chart

Technically, the SPX is caught in between conflicting forces. On one hand, it may have completed a bullish pennant. On the other, it is still below the top consolidation formed between October and December. The price closed yesterday’s session on the very downtrend line.

The gained 400 points, or 1.77 percent, pushed higher by Boeing (NYSE:) (NYSE:BA), which smashed analysts’ expectations despite ongoing trade uncertainty. The company exceeded $100 billion in annual revenue for the first time in its history, helped by a record delivery of 806 commercial aircrafts last year—a number it expects to surpass in 2019, forecasting a delivery range of 895 to 905. Moreover, the group bucked the broader weak-guidance trend, forecasting earnings within the range of $19.90 and $20.10 per share this year.

The surged 2.2 percent, outperforming its peers thanks to tech stock gains. The index bounced more than 2.5 percent from an intraday low on Powell’s statements. Technically, the tech-heavy gauge is already above its downtrend line, but remains below the 100 and 200 DMAs.

The underperformed, climbing 0.88 percent. Perhaps U.S.-China trade talks taking place in Washington yesterday and today are increasing the outlook for U.S. exports, favoring multinationals’ stocks at the expense of domestic firms shares. The Fed-led dollar weakening is likely to have reinforced that outcome.

Overall, we believe the market reaction to the Fed’s apparent dovish turn is disproportionate. In our view, buzz words like “patient” and “flexible” are insubstantial. Fed Chief Powell reiterated monetary policy decisions remain squarely data-dependent, and pointed out that that the central bank has recently had insufficient data due to the partial government shutdown.

We see comments that the U.S.-China trade dispute has yet to yield any impact on the U.S. economy as the only substantial information to be gathered from yesterday’s statements. On a downbeat note, Powell warned that a second government shutdown might cause a loss of confidence.

WTI Daily Chart

WTI Daily Chart

WTI crude retreated from $54.69, struggling to break above the $55 level, a resistance since early December. However, the commodity remains on an overall upward trajectory as Saudi Arabia continues to cut supply to the U.S. A further possible headwind though stems from the ongoing Venezuelan crisis and its related U.S. sanctions, which some analysts warn could result in a sharp rise in oil prices in the near future.

In FX news, the pound edged higher even as the European Union and U.K. appeared on a collision path over Brexit.

Up Ahead

  • Canadian , for November is released Thursday.

  • Canadian and for December are released Thursday.

  • Bank of Canada Governor Carolyn Wilkins speaks on Thursday.

  • for January is released on Friday.

  • Meetings between Chinese President Xi Jinping’s top economic aide, Vice Premier Liu He, and U.S. Trade Representative Robert Lighthizer and Treasury Secretary Steven Mnuchin continue on Thursday.

  • Chinese financial markets will close next week for the Lunar New Year holiday.
  • Amazon (NASDAQ:) (NASDAQ:AMZN) is scheduled to report earnings after market close today, with analysts expecting solid growth figures and forecasting $5.64 EPS and revenues of $71.87 billions.

Market Moves

Stocks

Currencies

Bonds

Commodities

  • West Texas Intermediate crude climbed 0.4 percent to $54.47 a barrel, the highest in 10 weeks.
  • Gold advanced 0.1 percent to $1,321.42 an ounce, the highest in almost nine months.



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