FOMC push back against March cut

A mixed start in Europe today, as traders struggle to weigh up the after-effects of yesterday’s FOMC meeting while preparing for today’s Bank of England appearance. While we came into this week knowing it could be a pivotal one for markets, things haven’t gone to plan as the FOMC pushed back against March easing expectations, and tech stocks slipped lower. Big tech comes back into focus once again today, with Apple, Amazon, and Meta hoping to buck the trend that has seen markets taking on a largely pessimistic stance despite better-than-expected figures from Microsoft and Alphabet on Tuesday.

Yesterday saw Jerome Powell push back against the notion that we could see the Federal Reserve cut rates as early as March, with markets now pricing a 65% probability that we will see the FOMC hold off until May at the earliest. This should come as no surprise given the strength of the US economy and likeliness that inflation will remain well above target for months to come. Friday’s jobs report looks unlikely to change the narrative, with low unemployment and elevated wage growth signalling the need and ability for the Fed to remain steadfast in their efforts to drive down inflation.

Today’s eurozone inflation figure saw a welcome decline that took the January figure down to 2.8%. However, the big story came from the monthly figure, with the -0.4% for January meaning that the eurozone is on track to see CPI reach 1% in just three-months. The ECB’s desire to know with certainty that they will reach the 2% target before cutting rates will be tested in the coming months, with traders awaiting a pivot that will likely have to come before long. The bank missed the opportunity to act early in a bid to control inflation on the way up, and their recent tone signals a strong likeliness that they similarly hold off until April despite the clear trajectory that puts inflation well below that 2% target in the coming months.

Today sees earnings from Apple, Amazon, and Meta, with traders hoping for a more successful result compared with Tuesday’s sell-off for Microsoft and Alphabet. Markets are clearly in a somewhat unforgiving mood at the moment, with the lofty valuations attached to tech stocks meaning that we need to see a largely perfect combination of better-than-expected revenues, earnings, and outlook if the stock is to push higher. Nonetheless, the trend is your friend in markets, and any short-term blip will likely be temporary as investors buy the dip ahead of a year that should see monetary easing which typically benefits growth stocks.