Markets consolidate recent moves amid hawkish Fed expectations

Global traders brace for Fed’s aggressive rate hikes while paring the latest losses during early Tuesday, following a few days of pessimism surrounding inflation and growth fears.

The corrective pullback allowed USD bulls to take a breather around the highest levels since 2002 while the US Treasury yields also retreat from a nearly two-decade top, marked the previous day.

Even so, equities in the Asia-Pacific region remained in the red, tracking the bear market signal from Wall Street, whereas stocks in Europe and the UK print mild gains by following the US stock futures.

Prices of cryptocurrencies and crude oil cheered the US dollar weakness while gold licks its wounds after witnessing the biggest daily slump in three months. Antipodeans were also on the positive side even as China’s covid conditions worsen.

• Brent oil extends the previous day’s recovery and moves towards $125.00.
• Gold pares the biggest daily fall in three months around $1,830, up 0.55% intraday.
• USD Index reverses from the highest levels since 2002, down 0.50% around 104.70.
• FTSE 100 gains 0.30% while DAX and EUROSTOXX50 gained around 0.60% by the press time.
• Wall Street benchmarks slumped more than 2.5% each on Monday, Nasdaq lost nearly 5.0%.
• BTCUSD gains 1.5% with eyes to regain $23,000 while ETHUSD adds around 2.8% daily gains while picking up bids near $1,250.

Pre-Fed positioning portrays relief rally

As the Fed Fund Futures portray an over 90% chance of a 75 bp rate hike by the Fed on Wednesday, traders seem to brace for the solid move, or maybe doubting that, while taking a step back.

The pre-Fed anxiety allowed the US stock futures to bounce off the yearly low while the US Treasury yields also retreat from over a decade’s high. With this, the US Dollar Index (DXY) snaps a four-day uptrend and allowed prices of Antipodeans, as well as commodities to rebound.

Further, gold recovered from the monthly low and the oil prices rise for the second consecutive day as US President Joe Biden’s readiness to visit Israel and Saudi Arabia renews concerns over the Sino-American talks in the future. 

Alternatively, Beijing’s covid cases jumped to a three-week high and tamed the optimism in the Asia-Pacific. Also challenging the equity bulls was the bear market signal from S&P 500 as it dropped 20% from the recent record high.

Cryptocurrencies took clues from a jump in NFT volume to print a relief rally after the BTCUSD dropped to the lowest in two years while the ETHUSD bounced off the lowest since early 2021.

⏫ 🟢 Strong buy: USDCAD, USDTRY and USDCNY

⏬ 🔴 Strong sell: Nasdaq, silver, ETHUSD, Brent oil

⬆️ 🟢 Buy: USD Index, USDJPY

⬇️ 🔴 Sell: DAX, FTSE 100, gold, BTCUSD

Short-covering session eyed ahead of FOMC

Given the recent consolidation in the markets, as well as the lack of major data/events, the corrective moves are likely to entertain intraday bulls. However, pessimism surrounding the central banks’ aggression and a likely bearish move by the riskier assets can’t be ruled out.

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