Daily summary: Powell remains in Fed 🏦 Oil skyrockets 🛢️ 🚀

• Futures on major US indices showed a clear divergence following Jerome Powell's recent press conference regarding the interest rate decision.

• Nasdaq futures are holding in the green (US100: +0.25%), while small, interest-rate-sensitive companies in the Russell 2000 are deepening their losses (US2000: -1.2%). Futures on the S&P 500 (US500: -0.3%) and DJIA (US30: -0.9%) are also losing ground.

• The Federal Reserve left US interest rates unchanged (3.50%–3.75%) for the fourth consecutive time, emphasizing a renewed jump in uncertainty regarding the economic outlook amid the war in the Middle East. 

  • Four FOMC members broke away from the consensus, the most since 1992. Stephen Miran voted for an interest rate cut, while Hammack, Kashkari, and Logan opposed changing the official monetary policy statement in a more dovish direction (i.e., they rejected mentions of potential cuts).

  • Powell will remain on the FOMC as a governor after Kevin Warsh takes over as chair (on May 15) until the Department of Justice proceedings are completely closed. 

  • Powell emphasized his confidence in his successor, Kevin Warsh, both in terms of managing the Fed's dual mandate and his independence from the White House. Oil is hitting extremely high levels, with potentially the highest closes since the beginning of the energy crisis. 

  • Yields on US 2-year bonds jumped by 10 basis points in reaction to the Fed's decision. The market is currently pricing in about a 10% chance of an interest rate hike by the end of 2026, but nearly 50% in 2027.

• The June Brent contract is closing at $118 per barrel, while the currently active and most liquid July contract is trading in the $110-$111 range. WTI oil is breaking above the $105-$106 level per barrel.

• The DOE report shows a sharp drop in crude oil and petroleum product inventories, with a significant release of strategic reserves, indicating strong local demand and record exports.

• For crude oil, it reached 6 million barrels, while for all products, it was as high as 14 million barrels. Oil is reacting to further uncertainty regarding the Strait of Hormuz. Donald Trump suggests a possible return to bombing Iran and rejects the proposal to open the strait and postpone nuclear negotiations.

• The decline in oil inventories was -6.2 million barrels, compared to an expected increase of 0.3 million barrels. Gasoline inventories fell by 6.08 million barrels (expected -2.1 million), while distillate inventories fell by 4.49 million barrels (expected -2.3 million).

• CPI inflation in Germany for April rose slightly less than expected to 2.9% y/y (expected 3.0% y/y; previous 2.7% y/y). The Bank of Canada left interest rates unchanged at 2.25%, with slightly higher inflation forecasts. Canada's economy is resilient to the shock primarily due to its heavy focus on oil exports.

• Durable goods orders saw a significant rebound of 0.8% m/m (expected 0.5% m/m; previous -1.2% m/m). 

• The US dollar dominates the forex market today (USDIDX: +0.25%), supported by a decrease in risk appetite in the face of rising oil prices and the hawkish "blockade" of the monetary policy statement after the Fed decision. USDJPY is trading above the psychological resistance of 160, raising concerns about currency intervention by the Japanese government. EURUSD is losing 0.3% to 1.167.

• A strong dollar and rising oil prices causing inflation concerns are leading to a drop in precious metal prices. Gold is falling to $4,540, the lowest level since the end of March, while silver is dropping to $71.5 per ounce.

• Very strong gains are being observed in many agricultural commodity markets. Corn is rising to nearly 480 cents per bushel, the highest level since May 2025. Strong gains are also seen in wheat (with a later pullback). Sugar is recording a gain of about 4%, negating half of the decline from recent weeks.

• Broad declines dominate the cryptocurrency market. Bitcoin is pulling back about 1.3% to $75,300, while Ethereum is losing about 2.6% to $2,230. Among the few gaining tokens is Dogecoin (+2.4%).

• After the Wall Street session, four major Big Tech companies will report financial results: Microsoft, Alphabet, Meta, and Amazon. The market will, of course, focus on the return on massive AI investments and continued massive capital expenditures.

Oil has the potential for its highest close since the start of the conflict, although it should be remembered that we are after two large downward rollings due to extreme backwardation. Source: xStation5