US Stock Market Continues to Fall After FOMC Announcement: Impact on Interest Rates, Dollar, and Crude Oil

The US stock market continued to fall on the 3rd. It rose briefly after the Federal Open Market Committee (FOMC) hinted at the possibility of halting rate hikes, but selling dominated when Fed Chairman Jerome Powell’s remarks got across. . At a press conference after the meeting, the Fed chairman said he would not cut rates if inflation remained high.

However, the US Treasury market is increasingly pricing in interest rate cuts, and the swap market is expected to continue to see significant easing by the end of the year. Two-year bond yields, which are sensitive to monetary policy trends, temporarily fell 12 basis points (bp, 1 bp = 0.01%). The dollar continues to fall in the foreign exchange market.

FOMC Raises Rates by 0.25 Points – Chairman Powell Suggests Suspension (3)

Market players’ comments on the FOMC are as follows.

• Ronald Temple, chief market strategist at Lazard

“No surprises. The FOMC struck the right balance in keeping inflation under control while avoiding further stress on the banking system. It’s time to take a pause to maximize the reach of

• Gregory Faranello, Head of U.S. Rates Trading Strategies, Ameribet Securities

“The change in wording is consistent with our views and the changing circumstances over the last few meetings, and marks the end of the tightening cycle.”

• Florian Hierpo, Head of Macro Research at Lombard Odier Asset Management

“The Fed is walking a tightrope, but it seems they know what they are doing. However, its biggest enemy (surprise big rate hike) is gone, and this is the first step towards a significantly improved outlook.From an equities perspective, it’s probably a good thing that interest rates are calming down.”

Before the FOMC announcement, the market was also conscious of the uncertainty surrounding the US federal debt ceiling problem.

U.S. debt ceiling problem, only a short time left until the deadline-Short-term measures may overcome

“This is a significant risk event over the next few weeks and possibly the next month or two,” said Aninda Mitra, head of Asia macro and investment strategy at BNY Mellon Investment Management in Singapore. “My recommendation for an asset allocation in this environment is to be long in bonds and underweight in equities,” she said.

foreign exchange

The Bloomberg Dollar Spot Index, which shows the movement of the dollar against 10 major currencies, dropped 0.7% at one point after the FOMC announcement, falling to the lowest level in two weeks. After that, when Chairman Powell mentioned the strength of the labor market, the market recovered somewhat. The dollar fell to 134.84 yen against the yen at one point.

Data released on Monday showed U.S. private payrolls rose for the first time in nine months in April, underscoring a robust labor market despite the economic slowdown.

U.S. ADP private payrolls surge for first time in nine months – nearly double expectations (2)

crude

New York crude oil futures fell for the third straight day. Fears that the global economy is headed for a recession have increased after U.S. data showed weak demand.

The US Energy Information Administration’s (EIA) inventories data released today showed a decline in gasoline demand and an increase in fuel supply. Jet fuel demand also declined. However, it remains slightly above the level of a year ago.

The gap between July and August delivery of North Sea Blend futures narrowed to 15 cents from a temporary high of 43 cents at the beginning of the week. This suggests that traders expect supply to outstrip demand in the short term.

“This is the hardest time to buy on the cheap since the coronavirus rally,” said Daniel Galli, commodity strategist at TD Securities. The deterioration in Brent time spreads “suggests that expectations around commodity demand have fallen significantly as traders imply a hard landing. This is the first time that the market has started to be priced in.”

June West Texas Intermediate (WTI) futures on the New York Mercantile Exchange (NYMEX) closed at $68.60 a barrel, down $3.06 (4.3%) from the previous day. London ICE’s North Sea Brent July contract fell $2.99 ​​to $72.33.

Money

The New York gold market continued to rise. Fed Chairman Jerome Powell suggested the FOMC could consider stopping rate hikes.