Dow Jones Industrial Average drops further as investors dial down Fed cut hopes

Source Fxstreet
Apr 11, 2024 16:50

 

  • Dow Jones index trades lower for fourth consecutive session this week with Wall Street mixed.
  • US PPI data has provided some relief to investors although market sentiment remains frail.
  • The Dow Jones index forms bearish Head & Shoulders pattern that might anticipate deeper correction. 

The Dow Jones Industrial Average (DJIA) is posting losses for the fourth consecutive day this week with Wall Street markets mixed as US PPI data has eased concerns triggered by Wednesday’s Consumer Price Index (CPI).

US Producer Prices Index (PPI) rose at a 0.2% MoM rate in March, below the 0.6% increase seen in the previous month. The yearly rate accelerated to 2.1% from 1.6% in February, but that was still below the 2.2% rate forecasted by market experts.

Wall Street indices are mixed on Thursday with the NASDAQ 0.6% higher at 16,279, the S&P 500 trading 0.1% above the opening level at 5,166, while the Dow Jones lags with a 0.3% decline to 38,343.

Dow Jones news

Most Wall Street sectors are posting losses on Thursday with investor confidence still weak as the market pares back its hopes of Fed cuts for this year.

The Energy sector is the most affected Thursday with a 1% decline, followed by Financials, which are 0.59% lower. On the winners' end, Technology is leading gains with a 0.98% advance, followed by Communication Services, up 0.45%.

Travelers Companies (TRV) is the worst performer of the index with a 1.68% fall to $220.61. Next is Chevron (CVX), down 1.34% to $160.50. Nike (NKE) is outperforming its peers on Thursday, boosted by the release of the US Olympic uniforms with a 3.15% rally to $91.78, followed by Apple (AAPL) trading 1.41% higher at $170.16.

Dow Jones technical outlook

The Dow Jones Index is trading lower again on Thursday. The move below 38,560 has activated a bearish Head & Shoulders pattern that might anticipate a sharper decline.

The next bearish targets are 38,033 and 37,750. The measured target of the H&S pattern is the mid-January low and 38.6% Fibonacci retracement at 37,087. A bullish reaction above 38,540 might find some more supply ahead of 39,000 (order block).

Dow Jones Index Daily Chart

Dow Jones Index Chart

Central banks FAQs

Central Banks have a key mandate which is making sure that there is price stability in a country or region. Economies are constantly facing inflation or deflation when prices for certain goods and services are fluctuating. Constant rising prices for the same goods means inflation, constant lowered prices for the same goods means deflation. It is the task of the central bank to keep the demand in line by tweaking its policy rate. For the biggest central banks like the US Federal Reserve (Fed), the European Central Bank (ECB) or the Bank of England (BoE), the mandate is to keep inflation close to 2%.

A central bank has one important tool at its disposal to get inflation higher or lower, and that is by tweaking its benchmark policy rate, commonly known as interest rate. On pre-communicated moments, the central bank will issue a statement with its policy rate and provide additional reasoning on why it is either remaining or changing (cutting or hiking) it. Local banks will adjust their savings and lending rates accordingly, which in turn will make it either harder or easier for people to earn on their savings or for companies to take out loans and make investments in their businesses. When the central bank hikes interest rates substantially, this is called monetary tightening. When it is cutting its benchmark rate, it is called monetary easing.

A central bank is often politically independent. Members of the central bank policy board are passing through a series of panels and hearings before being appointed to a policy board seat. Each member in that board often has a certain conviction on how the central bank should control inflation and the subsequent monetary policy. Members that want a very loose monetary policy, with low rates and cheap lending, to boost the economy substantially while being content to see inflation slightly above 2%, are called ‘doves’. Members that rather want to see higher rates to reward savings and want to keep a lit on inflation at all time are called ‘hawks’ and will not rest until inflation is at or just below 2%.

Normally, there is a chairman or president who leads each meeting, needs to create a consensus between the hawks or doves and has his or her final say when it would come down to a vote split to avoid a 50-50 tie on whether the current policy should be adjusted. The chairman will deliver speeches which often can be followed live, where the current monetary stance and outlook is being communicated. A central bank will try to push forward its monetary policy without triggering violent swings in rates, equities, or its currency. All members of the central bank will channel their stance toward the markets in advance of a policy meeting event. A few days before a policy meeting takes place until the new policy has been communicated, members are forbidden to talk publicly. This is called the blackout period.

 

Disclaimer: For information purposes only. Past performance is not indicative of future results.
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