Fed Raises Rates by 50bps; Future Hikes Are Likely

What you need to know…

U.S. stocks are mixed after the FOMC raised rates by 50bps as expected; and signaled further rate increases throughout 2022.  10yr-note (ZNM22) yields are flat suggesting that guidance and commentary from Jerome Powell was in line with expectations.  Given the recent direction of the market, inline expectations may not provide buying support, and buyers should be cautious…  Some were expecting the recent downturn in the market to manifest in a more accommodative Fed.

The U.S. Apr ADP employment change rose +247,000, weaker than expectations of +383,000 and the smallest increase in 2 years.

The U.S. Mar trade deficit of a record -$109.8 billion (data from 1992) was wider than expectations of -$107.1 billion and had negative implications for GDP growth.

The U.S. Apr ISM services index unexpectedly fell -1.2 to 57.1, weaker than expectations of an increase to 58.5.

Today’s stock movers…

Starbucks (SBUX) is up more than +7% today to lead gainers in the S&P 500 after reporting Q2 net revenue of $7.64 billion, better than the consensus of $7.62 billion. 

Airbnb (ABNB) is up more than +8% today to lead gainers in the Nasdaq 100 after reporting Q1 revenue of $1.51 billion, better than the consensus of $1.45 billion, and forecast Q2 revenue of $2,03 billion-$2.13 billion, above the consensus of $1.97 billion. 

Advanced Micro Devices (AMD) is up more than +4% today after reporting Q1 revenue of $5.89 billion, above the consensus of $5.30 billion, and raised its full-year revenue forecast to $26.3 billion from a prior view of $21.5 billion, well above the consensus of $24.08 billion.

Paycom Software (PAYC) is up more than +7% today after reporting Q1 revenue of $354 million, better than the consensus of $343.1 million, and raised its full-year revenue forecast to $1.33 billion-$1.34 billion from a prior view of $1.31 billion-$1.32 billion. 

Marriott International (MAR) is up more than +4% today after reporting Q1 international revenue of $4.20 billion, stronger than the consensus of $4.17 billion.

Generac (GNRC) is up more than +4% today after reporting Q1 net sales of $1.14 billion, stronger than the consensus of $1.09 billion. 

Akamai Technologies (AKAM) is down more than -11% today to lead losers in the S&P 500 after reporting Q1 adjusted EPS of $1.39, weaker than the consensus of $1.42.

Idexx Labs (IDXX) tumbled more than -8% today to lead lowers in the Nasdaq 100 after forecasting full-year EPS of $8.11-$8.35, well below the consensus of $9.46. 

Johnson Controls (JCI) is down more than -10% today after reporting Q2 adjusted net sales of $6.10 billion, weaker than the consensus of $6.16 billion, and forecast an unexpected Q3 adjusted loss per share from continuing operations of -82 cents to -87 cents, well below expectations of a profit of $1.02 EPS.

Skyworks Solutions (SWKS) is down more than -7% today after forecasting Q3 revenue of $1.20 billion-$1.26 billion, below the consensus of $1.30 billion.

Across the markets…

June 10-year T-notes (ZNM22) this morning are down -6 ticks, and the 10-year T-note yield is up +3.2 bp at 3.003%.  T-note prices are moderately lower today and just above Tuesday’s 3-1/4 nearest-futures low.  The 10-year T-note yield is just below Monday’s 3-1/4 year high of 3.008%. T-notes are under pressure ahead of the results of today’s FOMC meeting, where the Fed is expected to raise the fed funds target range by 50 bp and announce when it will start shrinking its balance sheet.  T-notes also have carry-over pressure from a jump in the 10-year German bund yield today to a 6-3/4 year high of 1.031%. 

The dollar index (DXY00) this morning is down -0.11%.  The dollar is moderately lower today on long liquidation pressures ahead of the results of today’s FOMC meeting.  The dollar remained lower after this morning’s U.S. economic data showed the ADP Apr employment gain was less than expected, and the U.S Mar trade deficit widened to a record.

EUR/USD (^EURUSD) is up +0.21%.  EUR/USD is moderately higher today on strength in Eurozone government bond yields that strengthen the euro’s interest rate differentials.  The 10-year German bund yield climbed to a 6-3/4 year high today on hawkish comments from ECB Governing Council member Muller who said the ECB should consider raising interest rates as soon as July as inflation accelerates.

Today’s Eurozone economic data was bearish for EUR/USD.  Eurozone Mar retail sales fell -0.4% m/m, weaker than expectations of -0.3% m/m. Also, German Mar exports fell -3.3% m/m, weaker than expectations of -2.1% m/m and the biggest decline in nearly two years.

USD/JPY (^USDJPY) today is down -0.08%.  Trading activity today in USD/JPY is muted, with Japanese markets closed for the Golden Week holiday.  Higher T-note yields today are undercutting the yen and limiting losses in USD/JPY.

June gold (GCM22) today is down by -3.6 (-0.19%), and May silver (SIK22) is down by -0.290 (-1.28%).  Precious metals today are moderately lower, weighed down by expectations for the FOMC today to hike the federal funds target range by 50 bp.  Higher global bond yields today are also undercutting gold. A weaker dollar today is limiting losses in metals.