NAS100 Drops into the Cloud After Hawkish Fed Minutes & Strong US Data

NAS100 Analysis

The US Federal Reserve has raised rated by 525 basis points since the March 2022 lift-off, under the most aggressive tightening cycle in decades, in order to bring down inflation to the 2% target. Recent data show that its actions are having an effect and given the lags in the transmission mechanism, it may have already done enough to achieve its goal.

As such, policymakers have slowed the pace of tightening this year, but now global monetary policy has entered an intricate phase, with increased uncertainty around its path forward. The Fed raised rates in July, but Chair Powell touted data-dependency and did not offer any guidance as to the next steps, keeping all option on the table.

Wednesday's accounts of that last meeting had a hawkish tilt and pointed to more restrain. They revealed that "most participants" still see upsides risk to inflation, which "could require further tightening" of the monetary policy ^[1]

Despite the moderation, headline CPI ticked up to 3.2% y/y in July, although core inched down to 4.7%. At the same time, Unemployment dropped to 3.5% and wages stayed high. The economy remains resilient and this week's data alluded to that. Retail Sales rose to 0.7% in July and industrial production jumped 1%, in the highest reading in nearly two years.

The hawkish Fed minutes and the strong economic data, keep the door open to further rate hikes. Markets still believe that the terminal has been reached, but optimism around cuts has subsided. At the time of writing, CME's Fed Watch assigns the highest probability to the first rate cut occurring in Q2 2024. ^[2]

NAS100 is having a bad month and dropped further after this week's news, closing Wednesday within the daily Ichimoku Cloud. This creates risk for further losses towards the confluence of support at 14,336-14,220, but strong catalyst would be required for a test.

On the other hand, NAS100 reacts today as the cloud can support it and give it the chance to reclaim the EMA200 (at around 15,230). Daily closes above will reestablish the upside bias and bring 15,946 in the spotlight, although this may prove elusive in the near-term.

Looking ahead markets will be looking to next week's Jackson Hole Symposium for any more clues around the Fed's intentions and the earnings of Nvidia. The AI boom that has fueled this year's NAS100 rally, has been enabled by the chip-designer so its latest quarterly results will be closely watched.