Stocks recover amid a fragile tape on moderated Fed language

Despite a severe drop in US April's new home sales data, US stocks rebounded to the close.

Consumer stocks are still in focus as recession fears remain at the forefront. And with the negative feedback loop magnifying recession and growth fears, investors run for cover on the first signs of danger.

It is hard to believe that Snap can have this much market impact, but this comes amid a fragile tape - soon after Target CEO Brian Cornell's comments that the consumer world had shifted materially in the last 13 weeks.

However, there has been a distinct change of tone from the Fed over the last couple of weeks, allowing investors to sift more comfortably through the carnage. While still hawkish, the FOMC has moderated its guidance, with Atlanta Fed's Bostic talking about a potential pause in the hiking cycle in September and St Louis' Bullard switching from talk of a 75bp hike to the potential of rate cuts late next year.

Investors will not turn to the FOMC minutes for clues about how officials think the policy outlook will shape beyond the next two meetings.

The September gathering is a potential pivot point for policy. But Fed pricing is coming out of the market for September, with traders now seeing a 37% chance for a 50bp hike.

Oil

It was a reasonably quiet session for crude prices by current standards. Concerns around the number of Covid cases in Beijing initially weighed on prices Asia, but with physical oil brokers struggling to find buyers despite the deep discount for Urals, prices recovered

With explicit bans on importing Russian crude in the US and UK, and oil companies reluctant to buy even without formal legal obstacles, self sanctions are still causing supply shortages.

Although purchases by India and China have increased, neither of these countries has an unlimited appetite for Russian crude. Russia may struggle to find replacements for European buyers if, as seems likely, there continues to be a collective move away from Russian energy.

Gold

Gold investors are starting to notice the softer change in the FED language, and dips to $1850.00 are met with solid support. Traders will be looking to the FOMC minutes for policy hints beyond June and July, as September rate hike expectations could be hugely pivotal for Gold prices.

Forex

Hawks on the ECB seem to be out in force again yesterday, giving the EURO a lift when FED pricing is coming out of the market for September, creating a bullish confluence for the EURUSD

The FX market seriously considers the threat of higher ECB rate hikes, but not the aftermath. Raising rates into positive territory adds a monetary brake to an already vulnerable economy.

We should expect further upside for EURUSD after ECB President Christine Lagarde told Bloomberg TV she expects rates to be positive at the end of Q3. While her comments do not differ from the ECB voices heard over the past two weeks, they are a long way from her remarks at the last ECB press conference. The market has been trading EURUSD from the short-side for some time and is forced to start to reduce given the price action after the unified shift in ECB language.