Fed stays patient, more trade talk optimism

- Fed stays patient on interest rates, boosts liquidity for banks
- Theresa May and Jeremy Corbyn are getting closer to cross-party Brexit deal
- US-China trade deal may be announced next week

One of the main market moving events of the week - the Federal Reserve meeting - is already behind us and it has provided a bit more clarity. The US central bankers decided to leave the main interest rate unchanged and to cut the interest on excess reserves rate to 2.35%. Such a move bolstered market expectations of an impending rate cut and has sent the US dollar broadly lower in a knee-jerk move. However, during the press conference Chairman Powell explained that the move is aimed at improving liquidity on the interbank market and should not be viewed as a hint on the future rate path. Nevertheless, Jerome Powell had to repeat a few times during the conference that he is not committed to any rate cuts right now. Having said that, the situation may be a bit more clear in the sense of what to expect next - nothing. It looks like the Federal Reserve is neither likely to raise nor to cut rates in the nearby quarters and given that the economy is faring quite good it has the right to stay on hold. However, it is possible that markets will be offered some more tweets from the US President Donald Trump as it is not a secret that he would like to see Fed stimulate the economy more. Moving to the charts, the EURUSD trades below pre-conference levels and S&P 500 took the biggest dive in 6 weeks yesterday.

S&P 500 (US500) took a major dive yesterday as Fed turned out to be less dovish than markets assumed. The index experienced the biggest single-day drop in 6 weeks and is trading back below last years’ highs. Source: xStation5

Elsewhere, the British pound strengthened on positive Brexit developments. Reports surfaced Wednesday evening saying that the Prime Minister Theresa May and leader of the Labour Party, Jeremy Corbyn, are moving closer toward the Brexit agreement. Let us recall that team led by key figures from both sides of the UK political scene are looking for ways to break Brexit impasse and are negotiating withdrawal agreement for a month. Theresa May is said to be ready to give up on demand of leaving the EU’s customs union. It would be a great development for the UK economy as it would preserve a major part of trade and shield it from major disruptions. However, it should be noted that Theresa May already promised that she will not keep the United Kingdom within the EU’s customs union therefore such a move risks angering Conservative Party members. The word on the street is that the UK government team plans to hold a “big” Brexit meeting on 7-8 May therefore some more details may be known next week.

GBPUSD halted declined as the USD began to weaken. The pair took a major jump higher during the past couple of days and is trading above the 1.3030 handle at press time. However, a negative price reaction to the 50-session moving average (orange circle) can be seen as a warning signal. Source: xStation5

Moods on the global markets may be a bit more upbeat today thanks to yesterday’s CNBC report. Namely, the business news agency claims that the US-China trade deal may be announced as soon as next Friday (10 May). The agency says that sides of the conflict may use next week’s visit of the Chinese Vice Premier Lie to Washington to announce a breakthrough. However, the revelations are based on unnamed sources and no official confirmation was released.

Daily summary: Stocks finish in the green despite poor US data
Nikola stock jumps 11% on optimistic outlook
Three markets to watch next week
EURUSD breaks above 1.2150
MACRO: Poor NFP report convenient for Fed
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