US stocks rally on the open; Biogen plunges

Summary:

• Pivotal session ahead for US stocks

• Markets gain from the open but still below post-Fed high

• Biogen shares plunge over 25% after trial ends

Today’s session for US stocks could well prove decisive after an initial rally following an even more dovish than expected Fed saw equities fall back near their lows on the close. For the Dow, the post-Fed high of 25960 is now a potentially key reference point and while the market has made a bright start this afternoon, unless it gets back above there then further downside could lie ahead. 25615 could be seen as the level to watch below.

The US30 has made a strong start this afternoon and the market is now back at the 61.8% fib of the recent decline at 25939. Source: xStation

Dovish Fed weighs on USD but stocks fail to rally

The US central bank confirmed their policy U-turn with the announcement last night that rate-setters see no interest rate hikes this year, and only a token 1 in 2020. The market has been expecting this for a while since Chair Powell’s speech at the start of the year, with no 2019 hikes already priced-in before the latest meeting, but the Fed went above and beyond what most expected by also announcing a slowing of its balance sheet reduction - also known as Quantitative Tightening (QT) beginning in May. This dovish move caused an immediate drop in the buck, which depreciated across the board while stock and treasuries rallied.

No Powell Put?

What’s important to note is the reaction function of different markets to this change in tack, with equities already seemingly heavily discounting the move, whereas FX markets have been slower to price it in. For instance, the large gains seen for US stock markets this year have been arguably driven by this shift in Fed policy more than any other factor, while the US dollar still remains higher than it did at the start of the year (according to a trade-weighted index of the buck.) Why this is crucial to note is what it means going forward, with the scope for a sustained move lower in the US dollar now seemingly far greater than a sustained rally in stocks - if we look purely based on Fed policy.

Indeed after an initial move higher as the news broke, US stocks gave up most of the gains, with both the S&P500 and Dow Jones Industrial Average ending the day in the red. A failure to extend the year-to-date rally on what is essentially good news could prove ominous and those who still believe in a “Powell Put” should be aware that the S&P500 has only managed to post a gain on 1 of the 9 days of a Fed rate decision since his tenure began.

Biogen plunges after ending Alzheimer’s drug trials

Shares in Biogen (BIIB.US on Xstation) have lost more than a quarter of their value this afternoon as the stock swoons following news that it has halted a key trial for it’s Alzheimer’s drugs. The Pharmaceutical company and Japanese partner Eisai announced they would cancel their late-stage trial in an event that Guggenheim describes as “investors’ worst fears come true.” The two companies said they would scrap their global late-stage trials, ENGAGE and EMERGE, designed to "evaluate the efficacy and safety of aducanumab in patients with mild cognitive impairment due to Alzheimer's disease and mild Alzheimer’s disease dementia."

Shares in Biogen have tumbled by 29% after the firm announced it had cancelled a key drugs trial. The stock has fallen to its lowest level since July 2016 Source: xStation