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US equities rallied for a second day amid further stability in the banking sector with assurances from treasury secretary Janet Yellen that the US financial system was safe helping to improve investors mood.
All major indexes finished in the green with a big bounce in regional banks seeing the Russel 2000 outperform, up almost 2% on the day, with the risk sensitive Nasdaq not far behind.
An easing of fears saw the markets reprice a higher chance of a Fed rate hike later today, what was a 50 -50 bet between a hike or a pause a few days ago has now moved to the Fed funds pricing in a 85% chance of a 25bp hike in today’s pivotal meeting.
In FX markets, this repricing saw the US dollar stronger against most it’s peers, with the big exception of the Euro which continued to rally on some hawkish comments from the ECB, it set new March highs and is on the way to test the Feb highs. Higher yield differentials didn’t help the Yen, and again the laggard was the NZD as recession fears still linger, the NZD being particularly sensitive to risk.
Higher yields and improving risk sentiment also saw gold take a big hit, dropping almost $40 an ounce to the 1940 level.
WTI Oil also continued it’s rally from Monday, surging back above the 69$ a barrel level, just stopping short of it’s 70$ a barrel resistance level, which will be a big level to watch in the coming days.
Later today, we have the first of the Major Central banks rate decisions, this one is the big one with the FOMC, markets are pricing in a 25bp hike, but most the action I suspect will come from the accompanying statement as traders look to see what the Fed has to say about recent bank crisis and what clues are given as to their future direction. Major volatility over this announcement is a given.
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