Chop chop 

Stock markets in Europe are going nowhere after Wall Street finished flat, with investors digesting the ‘higher for longer’ message ladled out for us by the central banks. The FTSE 100 is straining to get a look at 7,500 but not hitting it and the DAX is similarly struggling to mount a challenge at 16,000. Asian shares struggled for any momentum, and it all looks rather sideways for the time being. Gold is weaker, testing the $1,900 round number, oil holds onto some gains after a big decline in US inventories and yields are a touch firmer with the US 10yr at 3.75%, though the UK’s 2yr gilt yield has retreated a touch from its 15-year high with sterling firming up a bit after being roundly sold yesterday.   

Sintra Mantra 

The Sintra mantra is higher for longer: Powell teed up the prospect of hikes at consecutive meetings, saying more ‘restriction’ is coming, and Lagarde said there is no intention to pause yet – stocks didn’t like this much, and Wall Street fell at the open just as the comments from Sintra were dropping on the wires, whilst European markets retreated to give back some of the day’s gains. The BoJ’s Ueda even hinted at a policy shift this year if underlying inflation picks up.  

Time 

There is an under-discussed element to monetary policy: time. Powell says policy has only been restrictive for 6-9 months – the pause is about allowing time to do some lifting. But there was a message too about the number of hikes – there could be more than 2 more 25bps increases and markets are wary about this restriction...the risks of doing too much have never been higher than they are now but Powell says this morning that the risk of overtightening is not in the balance right now.  

Today’s Data 

Today – weekly unemployment claims in the US are expected above 260k for a fourth week. Also look to the final GDP number, forecast at 1.4%. Meanwhile the big US banks all passed the Fed’s stress tests, ensuring some of the largest lenders on Wall Street will be free to dish out dividends and buybacks.

Sterling Cracks 

Sterling took a beating worse than the England bowlers yesterday – sense that stagflation is not good for the pound in the wake of last week’s 50bps hike is clear enough...not a direct catalyst as such for this move as it was offered all day...maybe just too many traders at Lords and not at their desks? Really I’d say a confluence of doubts and technical factors at play and the dam burst. Support found at the 21-day EMA. 

Oil inventories continue to show a marked decline - US crude stocks fell by 9.6 million barrels, versus an expected draw of 1.27 million barrels. Price can’t catch a break still. 

Dollar – DXY futures signalling potential bullish MACD crossover, 100-day line offering resistance – look for breach of both.