Hawkish Hold

Stocks were seen rallying yesterday as the Fed paused its tightening campaign after 15 months of rate increases. The pause, which was well signalled, came with a decidedly hawkish set of forward guidance from the Fed. Powell warned that despite keeping rates on hold this month, a further pause is not set in stone and, as such, July is still very much a live meeting. Indeed, looking at the updated dot plot forecasts, the Fed currently projects two further rate hikes before tightening starts to be unwound in 2024. Out of all voting members, only two expect no further rate hikes this year, revealing a very hawkish skew within the Fed.

Data Dependent Fed

On the back of the meeting, we’ve seen a little softening in equities prices as traders digest the details. The broad strokes are that the Fed stands ready to act further if needed, and currently thinks that is likely. However, each meeting decision will be taken on a data dependent basis and, with inflation falling sharply, the current pause could well be extended longer if data allows, in which case stocks have room to continue higher near-term. We can now expect incoming data, particularly around employment and inflation, to create above-average volatility as traders look to anticipate forthcoming Fed moves.

Technical Views

Nasdaq

The rally in the Nasdaq has seen the index breaking out above the top of the bull channel, though stalling just ahead of the 15177.5 level. For now, with momentum studies bullish, the focus is on a further push higher and an eventual break of the level. To the downside, 14288.2 is the next support to watch.