A week full of surprises

The second big surprise of the week came from the Swiss National Bank (SNB). The Swiss cut the interest rate by 25bp to 1.5% yesterday, in a surprise move and became the first major central bank to cut rates. The Swiss 10-year yield fell to 65bp and franc lost against the dollar and the euro. The USDCHF broke above the 2022 to 2024 downtrending channel and the EURCHF spiked above a minor Fibonacci retracement, though it remains well above the prepandemic levels both against the greenback and the single currency. The SNB is expected to lower rates two more times this year and the latter should lead to a gradual depreciation of the Swiss franc, help exporters to see the light at the end of the tunnel and support the stock valuations. UBS observes that a 1% deprecation in the franc leads to around 0.9% rise in the Swiss stocks. The SMI jumped 0.73% yesterday.

Now, if the Swiss could kick off the pivot party, it is because inflation in Switzerland has been easier to fight for the SNB thanks to the traditionally strong franc. The Swiss inflation fell to 1.2% in February. But the fact the Swiss jumped into the water raised the expectation that the others will join ‘soon’.

How soon? If all goes well and inflation remains under control, the Fed and the ECB are also expected to cut in June. In the UK, two Bank of England (BoE) hawks dropped their rate hike vote. As such, no one voted to hike the rates in Britain yesterday, 8 MPC members voted to stay pat and 1 voted to cut. Votes in favour of cut are yet to rise, but the BoE also gives signs of turning its back to policy tightening.

Cable slipped below the 50-DMA and is testing the 100-DMA to the downside this morning, the Japanese yen remained offered despite latest data showing that inflation in Japan rose to a 3-month peak, and the EURUSD sank to the 200-DMA. The selloff was amplified by a surprisingly strong set of economic data released in the US yesterday that got some Fed doves to scratch their heads about the Fed’s determination to cut rates ‘sometime this year’ and boosted the dollar appetite.

Confusion reigns. The Fed – whose underlying economy doesn’t necessarily need a rate cut sounds dovish and the ECB – whose underlying economies need a rate cut – remains relatively hawkish. The data tells one story, the policymakers tell another and the prices move unpredictably.

But not in the stock markets. There, everything is fine. The European stocks traded at a fresh ATM, the S&P500 extended gains to a fresh record as well, this time because the strong data, combined to dovish Fed, fueled optimism about soft landing. Nasdaq 100 also renewed record as Micron Technology jumped 14% yesterday beating Q2 expectations on strong AI demand. Nike gained timidly after beating expectations on surprise China strength and FedEx also rose on earnings beat and $5 billion buyback program. Apple however tanked 4% as regulators on both side of the Atlantic Ocean went after the tech giant and its monopolistic behaviour. The company looks like it’s carrying the misery of the world on its shoulders these days. It missed the AI rally, it’s sued by regulators around the world and China is not playing along. Price-wise, there is now a death cross formation on the daily chart, where  the 50-DMA crossed below the 200-DMA, a technical formation that encourages some traders to position short on the stock.

Elsewhere, Reddit made a strong debut on the NYSE, the shares opened 38% higher, rose as much as 60% and settled at +48% at the end of the first day of trading. As I was saying yesterday, the weather conditions for excellent for a first fly, but trading Reddit is suitable for those who love meme stocks.

Last but not least, Bitcoin managed to hold ground near the $60K this week, gold retreated after hitting a fresh ATH posterior to the Fed decision, while US crude failed to extend gains above the $83.70 and is back below the $81pb this morning on weaker US gasoline demand and hope of a ceasefire in Gaza, although the Israeli government said that they will ultimately invade Rafah no matter what the US says. I believe that we will see decent buying into and below the $80pb level both on the back of geopolitical tensions and the dovish central bank expectations. The actual positive trend in US crude could extend to $85pb level.