Indices continue to mark time, risk levels low

The major Indices appeared to be on hold as they drift into the weekend, with traders marking time ahead of the Federal Reserve meeting. The VIX, Wall Street’s fear index, fell to new lows. Gold fell below $2,000 for the first time in weeks. Earnings which are generally meeting or beating expectations are offset by a much anticipated May rate rise. This sanguine outlook could in itself pose a risk to the market’s immediate direction, with little room for negative news.

Wall Street is resigned to another Fed rate hike in early May, but it believes that will be followed by a pause, followed by rate cuts. Traders believe that the economy can withstand that without any additional significant pain. The interesting question remains whether this will be enough to curb inflation. Economic data suggests more resiliency in the economy, which is why the Federal Reserve fears ending rate increases too quickly.

The low level that the VIX, Wall Street’s fear index, suggests that stock traders feel well positioned currently in the stock market unless or until new information emerges to suggest additional downside risks.

Purchasing manager’s survey suggest economy still resilient

• Today's composite purchasing managers flash index for April came in at 53.5, well ahead of expectations, where any number above 50 represents month-on-month growth
• The manufacturing index component of the survey rose to 50.4, up from analyst expectations of 49.2
• The services index component came in at 53.7, up from analyst expectations of 51.5

Financial markets calm

• At the time of writing, the broad S&P 500 index and tech-heavy NASDAQ were both unchanged at 4,129 and 12,1057
• The VIX, Wall Street’s fear index, was 16.9
• The dollar index was flat at 101.8, with major cross rates unchanged
• Yields on 2- and 10-year Treasuries fell held steady at 4.15% and 3.56%, respectively

Gold below $2K, oil bounces off technical support

• Gold prices were the main story today, down 1.6% to $1,988 per ounce
• Crude oil prices edged down 0.5% to $77.8, currently bouncing off the 100-day moving
• The grain and oilseed sector was mostly lower in overnight trade

Chinese stocks sell off

• The Shanghai Composite Index is down 3% in the past few days
• Worries about China / US economic decoupling hit stocks, and were increased by reports that the Biden Administration is about to release a new order to further restrain US investment in China
• New rules are expected to target microchips and other sectors critical to the Chinese economy
• Chinese traders listened intently to US Treasury Secretary Yellen’s speech yesterday that seemed to be targeted toward calming investors while continuing to move forward with decoupling
• Chinese military action in Taiwan would be negative for the commodities sector given China’s leading role

Analysis by Arlan Suderman, Chief Commodities Economist

Contact: Arlan.Suderman@StoneX.com