[U.S. Market]Stocks Fall, FOMC Minutes Suggest Interest Rate Hike – Dollar High 134 Yen – Bloomberg

The S&P 500 stock index fell on the US stock market on the 22nd. There was also a scene that remained in positive territory during the day, but after the announcement of the minutes of the US Federal Open Market Committee (FOMC) meeting, the positive could not be maintained and finally closed down. The minutes of the FOMC meeting (January 31-February 1) indicated that the Fed would continue to raise interest rates amid persistent inflation concerns.

There wasn’t a lot of new information in the minutes, but it supports the view that there is absolutely no reason not to keep raising rates higher and longer if the resilience of the economy threatens the Fed’s ability to reach its target. It was content. Notably, Fed Chairman Jerome Powell has so far failed to push back on the idea of ​​easing financial conditions, while the minutes justify a “tighter stance.” The idea of ​​getting it was shown. The FOMC is clearly in no rush to cut rates.

FOMC Minutes: More Hikes Needed, Nearly All Support Slowing Pace (1)

Interest rate swap markets continued to reflect that recognition. Traders have almost fully priced in the expectation that the policy rate will be raised by 0.25 percentage points at each of the next three FOMC meetings. The overnight index swap (OIS) rose to 5.323% in June. That’s nearly 75 basis points above the current effective Federal Funds (FF) rate. The July OIS also approached 5.4%, pricing in higher levels than before for the peak policy rate.

The minutes said recent progress toward easing inflationary pressures could be halted if a repressive policy stance was “insufficient.” He signaled that the central bank was prepared to raise the policy rate above the 5.1% end point indicated in the official’s forecast in December last year. And “almost all” officials agreed that a 25 basis point rate hike was appropriate. But “several people” would have preferred a 50 basis point hike, or would have supported it if they had a vote, he said.

“There wasn’t a lot of new information,” said Ben Jeffery, a strategist at BMO Capital Markets. “There was unanimous support for a 25 basis point rate hike,” he said.

Quincy Crosby, chief global strategist at LPL Financial, said: “The minutes generally suggested a ‘wait-and-see’ approach. The FOMC remains data-driven. If the Fed continues to rise, a sufficient number of members (voting participants) at the meeting could strongly support a 50 basis point rate hike.”

A Bloomberg survey in February found that economists expect the Fed to raise its peak rate further and keep it there for the rest of the year as inflation persists. I have a wider view. Economists have raised their forecasts for all quarters through the end of the first half of 2024 for the personal consumption expenditures (PCE) price index, which authorities focus on as a gauge of inflation.

Economists raise forecasts for peak US interest rates as inflation persists

Earnings season has sparked market hopes that the S&P 500 will break out of the range that has lasted for several months. Between JPMorgan Chase & Co.’s January results and Walmart’s results on Feb. 21, the S&P 500 rose 0.4%. That lined up with the lowest market reaction to the earnings season since 2018, whether up or down, according to Bloomberg data.

“After a strong start to the year driven by institutional short-covering, skepticism about the sustainability of the rally remains strong,” said Mark Hackett, head of investment research at Nationwide. is starting to wrest control from the bulls.” “Institutional investors have been net long so far this year, but are well positioned to maintain a conservative position and sell quickly, while retail investors remain aggressive in buying equities,” he said. It’s similar to what we’ve seen,” he added.

US Treasuries

U.S. Treasuries rise. Yields have fallen from year-to-date highs reached just before trading opened in the United States. This suggests that some investors found this level attractive. The FOMC minutes reiterated the message that the policy rate will be raised further and maintained at a high level.

foreign exchange

In the New York foreign exchange market, the dollar index has expanded its rise in response to the FOMC minutes. The dollar narrowed its decline against the yen after the minutes were released. At one point in the morning, the dollar fell to 134.37 yen. The reason for this is that Japan’s long-term interest rates exceeded the upper limit of 0.50% of the allowable fluctuation range of the yield curve control (long-term interest rate control, YCC) policy of the Bank of Japan.

Long-term interest rates surpass BOJ upper limit for second straight day

crude

New York crude oil futures fell for a sixth straight day, breaking the record for the longest drop this year. The FOMC minutes, which called for further interest rate hikes, fueled fears of a slowdown in the U.S. economy and lower oil demand.

That optimism has also faded, despite a growing number of strong recoveries in demand in China after the withdrawal of a draconian “zero-corona” policy. West Texas Intermediate (WTI) futures on the New York Mercantile Exchange (NYMEX) closed below $74 a barrel today.

“Crude oil remains stuck in a volatile trading pattern, with rising interest rates and expectations of a slowing economy continuing to put downward pressure,” said Dennis Kistler, senior vice president at BOK Financial Securities. rice field.

West Texas Intermediate (WTI) futures for April delivery on the New York Mercantile Exchange (NYMEX) closed at $73.95 a barrel, down $2.41, or 3.2%, from the previous day. London ICE North Sea Brent for April contract fell $2.45 to $80.60.

Money

The New York gold market fell for the third straight day. Gold futures for April delivery on the New York Mercantile Exchange (COMEX) closed at $1,841.50 an ounce, down $1 (0.1%) from the previous day, before the release of the FOMC minutes.