Sterling shudders a warning for Fed and the US economy

Here is what you need to know on Thursday, May 5: 

The Fed basically baulked at killing the equity market on Wednesday as it trod a by now well-worn conservative path in hiking rates: 50 bps as expected. By taking a 75 bps hike off the table, the bond market immediately repriced the front end of the curve, and equities went into a massive relief rally. This was what we had called for in our note on Wednesday.

Positioning was underweight equities and sentiment was terrible, so a relief rally was the high probability risk-reward trade. The US dollar we also mentioned in our morning note as needing a correction and so it proved. This morning sees things take a more bearish tone with the Bank of England being more direct than the Fed could ever be. 

Equity markets though went on a rampage after the Fed, with the Nasdaq tacking on nearly 4% and the S&P 500 nearly 3%. All sectors finished in the green and market breadth was…

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