US stocks tumbled after the Fed downshifted to a half-point Rate hike pace but signaled ‘ongoing increases’ will be appropriate to combat inflation. Risk aversion roared back and that helped the dollar pare earlier losses.

FOMC

The Fed delivered a well-telegraphed half-point rate rise to its short-term borrowing rate, bringing the target range to 4.25%-4.50%.  The Fed’s statement and projections was hawkish as the Federal funds rate was seen reaching 5.1%, which was a half-point Higher than the September forecast.  The dot plot has shifted higher as the Fed appears to be pushing back on the market’s expectation that they will eventually cut rates at the end of next year.  The Fed’s GDP forecast shows they are committed to lifting rates to combat inflation, which will make policy very restrictive. 

The Fed did not welcome the disinflation trends that have just started to emerge and focused on robust job gains and elevated inflation. Any hopes of a soft landing disappeared as the Fed seems like they are committed to taking rates much higher.

Airlines

Delta remains confident that despite higher fares, demand should hold up next year.  CEO Bastian said, “Demand for air travel remains robust as we exit the year and Delta’s momentum is building.”

Delta’s fourth quarter EPS guidance was $3.07-3.12, which was higher than the $2.89 consensus estimate. Revenue for the quarter was expected to come in between $45.5-45.6 billion, lower than the forecast of $45.94 billion. 

Delta’s had two consecutive robust quarters but that won’t continue this quarter.  Bastian noted that December business travel is ‘off trend’ and other carriers have been more cautious with their respective outlooks.  Earlier this week, JetBlue noted holiday travel is shaping up worse than expected.  

If oil prices surge here, airliners’ struggles could get much worse. 

Oil

Crude prices initially tumbled after a surprisingly massive headline draw.  The EIA Crude oil report  showed stockpiles surged to the highest levels seen since March 2021.  The headline weekly number jumped to a 10.2 million barrels build, the consensus estimate was for a 3.4 million barrels to be withdrawn.  Energy traders will expect the next report to better reflect the impact of the Keystone Pipeline outage. 

The Strategic Petroleum Reserve saw another 4.75 million barrels taken away, which was the biggest amount taken in nine weeks.  Both crude exports and imports were rather impressive. Crude exports rose by 25.8% to 4.3 million barrels, while imports increased by 14.2% to 6.9 million barrels.

Despite the massive build, energy traders focuses EIA market forecast and potential bullish catalysts that include China’s reopening and possibly reduced output from Russia.

Crude prices pared gains after a hawkish FOMC decision sent the dollar skyrocketing higher. The Fed’s dot plot suggests they are forecasting a mild recession which will weigh on crude demand over the next two years. 

Gold

Gold prices declined after the Fed signaled they plan to continue to raise rates next year.  Gold’s recent gains were mainly driven on hope that the Fed could be done with a last rate rise in February, but this FOMC decision shows that is not the case. 

Gold is vulnerable to a tumble below the $1800 level because the Fed looks like it is set on taking policy to a very restrictive level. 

Crypto

Democratic Senator Warren is teaming up Republican Senator Marshall with the Digital Asset Anti-Money Laundering Act. This legislation doesn’t seem like it will get done with this Congress, but it gives everyone time to review it and form a strong consensus for getting more regulation done.  This Act will address some of the national security concerns as it requires crypto firms to play by the same rules that apply to banks and traditional firms. 

Bitcoin pared gains after the Fed delivered a smaller rate rise than recent meetings but signaled that ‘ongoing increases’ are likely appropriate.  Cryptos are getting dragged down as the dollar rallies with the return of risk aversion.