New dollar highs as rollercoaster risk ride continues

Stock markets have fallen across Europe and Asia this morning after the Fed signalled that the US central bank would begin boosting interest rates from crisis-era record lows in March. Following the about-turn in US markets after Chair Powell began talking last night, US equity futures have edged into the green after looking very red earlier this morning.

Bond markets have reacted swiftly to the Fed’s imminent removal of emergency stimulus by pricing in close to five interest rate hikes over the next twelve months. Many Wall Street banks are also revising their FOMC forecasts as Powell declined to rule out faster and bigger rate hikes from March. He said there was “quite a bit of room” to tighten monetary policy without harming the labour market.

Higher rates ultimately mean growth stocks could carry on struggling in the near term, even as the S&P 500 nears correction territory.

The broad-based index has lost roughly 9% of its value in January with speculative stocks particularly hard hit. Higher interest rates not only threaten corporate profits by raising borrowing costs, but they also lower the present value of companies’ forecast earnings.

Dollar joy at higher rates

King dollar has finally reasserted its authority (over those pesky low yielding currencies especially) this morning. The widely followed Dollar Index is enjoying its fourth day of consecutive gains and has hit highs last seen in July 2020. With greenback positioning more balanced, bulls will target the June 2020 high at 97.80.

Meanwhile, EUR/USD has plunged to new cycle lows below the previous bottom from November at 1.1162. The ECB is firmly sticking to the script that any bump in inflation will not hurry then into the start of a hiking cycle. Until this changes, then the world’s most popular currency pair should stay under pressure. The focus is likely to shift to the 1.10 area now that support has been broken and prices close the week below support/resistance. Traders will be watching today’s Q4 US GDP and the Fed’s favourite gauge of inflation, the core PCE deflator, which is released tomorrow.

Apple to report after the US closing bell

We have had some notable earnings releases over the past few days with Microsoft and Tesla reporting, and investors preparing for Apple’s latest quarterly figures later today.  The tech titan is expected to report all-time record revenue and a 13% rise in earnings. That said, the company which was the first to hit a $3 trillion market cap, has struggled to meet demand for sales of its iPhone 13 due to supply chain problems.

Apple watchers will also focus on its higher-margin services division which is set to grow at a much faster pace than the tepid pace of iPhone sales.

Technically, the stock has fallen sharply from all-time highs at $182.87 which it touched at the start of the year. But prices have found support more recently around the 100-day simple moving average and previous September highs at $157/$158. Bulls will want to get above the 50-day moving average around $168 to slow the current bearish momentum.