US Wrap – No favours from Powell

Fed Optimistic on the Recovery

Asian stock markets got no favours from Powell ahead of the open, with the central bank clearly deeming the level of accommodation currently on offer perfectly supportive for a recovery it believes is well underway. That’s despite the harsh winter the country is currently in the early stages of, with Covid once again wreaking havoc across the country.

The Fed offered a very optimistic assessment of both the current economic situation and the outlook for the coming years, revising GDP projections higher and unemployment lower. That may change in the coming months as states are forced into decisions that jeapardize the recovery but that will be partially offset, at least, by impending support measures from Washington.

You can maybe understand why the Fed opted against providing more stimulus, despite other central banks around the world doing quite the opposite, with the economy having recovered much better. As we’ve seen this year though, the situation evolves quickly and the US is far from out of the woods yet.

Investors may have been hoping for a little Christmas treat from the Fed but they’re clearly at ease with the decision under the circumstances. The dollar jumped a little but returned to pre-announcement levels shortly after. Gold pulled back but actually traded higher after the pressure conference, despite not getting the stimulus boost it maybe would have benefited most from.

A lot of pressure now on Congress and you have to imagine that the Fed would not have come to this decision unless they believed a significant support package was imminent. Those closest to the talks seem confident, including Senate Majority Leader Mitch McConnell who appears to be preparing for the possibility of a vote this weekend.

The markets do have a feel of the festive period being upon us and while there’s still two big deals still to be done, I wonder how much these markets have now priced them in and gone into holiday mode early. The next couple of days may be very eventful but possibly not so as far as the wider markets are concerned.

Oil higher but low on energy

Oil prices remain higher, buoyed by the surprise draw in crude inventories earlier in the day. There was some volatility around the Fed announcement, with crude maybe supported by the upbeat economic assessment, but it’s since stabilized around the levels it was trading at prior to the decision.

Little has changed, it seems as far as oil prices are concerned. OPEC+ appear to have put a floor under oil prices for now and while me may see a bit of a correction along the way, there is clearly more optimism around both the outlook and the ability of the group to coordinate necessary adjustments on the supply side.

Gold positive despite Fed hold

Gold could have receive a lovely bump had the Fed come out firing but, alas, it had to settle for a central bank that’s ready and willing when needed. While that may not be far away, given the carnage caused by Covid this month, patience will be key. Gold may have bottomed out for now but whether it can break $2,000 again is another thing. There’s plenty of stimulus in the system but more may not be necessary if we see a successful vaccine rollout.

Who needs the Fed? Not bitcoin

Bitcoins rally in the run up to the Fed meeting may not be entirely coincidental but the fact that the central bank didn’t deem it necessary to provide any additional stimulus hasn’t knocked it. The move above $20,000 has been coming and I’m probably a little surprised it didn’t come sooner. But now that it’s above, it will be interesting to see if it can hold and build on it. It came close to $21,000 soon after and hasn’t pulled off much since. Fed stimulus may have given it an extra kick but, let’s face it, bitcoin doesn’t need it. A break above $20,000 may bring the buzz and a strong end to the year.

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