Breaking News
Close
Investing Pro 0
NEW! Get Actionable Insights with InvestingPro+ Try 7 Days Free

Fed Minutes In Focus, As Data Outlook Darkens

By CMC Markets (Michael Hewson)Market OverviewMay 25, 2022 07:13
uk.investing.com/analysis/fed-minutes-in-focus-as-data-outlook-darkens-200519751
Fed Minutes In Focus, As Data Outlook Darkens
By CMC Markets (Michael Hewson)   |  May 25, 2022 07:13
Saved. See Saved Items.
This article has already been saved in your Saved Items
 

Having got off to a decent start to the week yesterday, European markets gave up all their Monday gains, sliding back sharply on worries over the growth outlook after flash PMIs missed expectations, against a backdrop of still rising input prices.

The FTSE 100 was a notable stand-out, trading lower, but managing to hold onto the bulk of its Monday gains.

US markets had another notably choppy session, with the reaction to Monday night’s Snap (NYSE:SNAP) numbers indicative of a market that appears to be afraid of its own shadow, with the Nasdaq 100 leading the moves lower.

Yesterday’s US economic data didn’t help the wider attitude to risk, with a weaker than expected services PMI report, while new home sales tanked by -16.6% in April, and the March number was revised lower to -10.5%, highlighting the impact that rising rates have had on the US housing market, with declines in sales every month this year.

This data deterioration is being reflected in US bond markets, which have seen further weakness in yields, suggesting that investors are becoming more concerned about stagflation/recession than they are about inflation.

It was notable that despite yesterday’s slide in US markets, both the Nasdaq 100 and S&P 500 managed to close well above their lowest levels of the day, a lack of follow-through that looks set to translate into a higher open for markets here in Europe this morning, as we look ahead to the publication of the latest set of Fed minutes.

As was widely expected, the Federal Reserve raised rates by 50bps, earlier this month, pushing the upper bound of the Fed funds rate to 1%. There had been talks that some on the committee were keen on a 75bps move, however, these concerns came to nought with all on the FOMC agreeing to a 50bps hike.

In addition, the central bank laid out the start of the balance sheet reduction program beginning with $47.5bn in June, rising to $95bn a month after 3 months. This was construed as being on the dovish side, given that the program was starting from a lowish base and then ramping up, rather than going for $95bn straight out of the gate.

Fed chair Jay Powell also said that based on current data that the Fed had no intention of going faster than 50bps in a single month, burying any imminent prospect that the Fed would be much more aggressive in subsequent months, a narrative that has shifted somewhat in the past couple of weeks.

At the time, he specifically made the point that a 75bps hike wasn’t something the FOMC was actively considering, although, in subsequent comments since then, he’s being careful not to rule it out entirely.

Given recent commentary from various Fed officials, it could be argued that these minutes are probably a little bit stale, especially given the recent deterioration in some of the recent economic data, and the fact that we look set to get two more 50bps rate moves between now and September.

Nonetheless, the discussion over balance sheet reduction is likely to be the more interesting one when it comes to today’s minutes, particularly the decision to start off with $47.5bn, as opposed to going straight in with $95bn a month reduction.

The slow start to balance sheet program suggests that there might have been some anxiety over how the tightening process might play out in the coming months. Recent comments from ex-Richmond Fed President Jeffrey Lacker suggest the scope for further financial markets volatility, with the Fed potentially being forced to choose between slowing the pace of runoffs in response to market volatility and widening credit spreads, or keeping policy tight to fight inflation, with the latter the most likely option.

The narrative has moved on a bit since then with a few Fed officials, including Chairman Powell, coming across as much more hawkish in recent comments, raising the prospect of much more aggressive moves in the weeks and months ahead.

This tone has shifted again this week after comments from Atlanta Fed President Raphael Bostic who suggested that with the prospect of another two 50bps rate rises to come in June and July, it might be prudent to allow a pause in September.

This appears highly significant given Bostic had been one of the leading hawks at the start of the year and could be the first signs of some delineation about the direction of monetary policy as we head into the second half of the year.

The US dollar is also feeling the pressure of this shift in bond markets, falling away sharply, and below last week’s lows, though part of this is down to shifting expectations that the ECB could be on the cusp of raising rates in July and September.

EUR/USD – has continued to push higher, towards the 1.0800 area where we have trend line resistance from the February highs, as well as the 50-day MA. We currently have support at the 1.0530 area.

GBP/USD – slid back to the 1.2470 support yesterday, which has held for now, but we now need to see a move beyond the 1.2630 area to argue a short-term base is in. Below the 1.2470 area, argues for a move to the 1.2320 area. Above 1.2630 argues for a return to the 1.2830 area

EUR/GBP – could see a retest of the highs this month just above the 0.8600 area. We now have support at the 0.8525/30 and last week’s peaks.

USD/JPY – looks at risk of breaking lower, below the 126.70 area, towards the 50-day MA, and down towards the 123.00 area. We currently have resistance at the 128.30 area.

Disclaimer: CMC Markets is an execution-only service provider. The material (whether or not it states any opinions) is for general information purposes only and does not take into account your personal circumstances or objectives. Nothing in this material is (or should be considered to be) financial, investment, or other advice on which reliance should be placed. No opinion given in the material constitutes a recommendation by CMC Markets or the author that any particular investment, security, transaction, or investment strategy is suitable for any specific person. The material has not been prepared in accordance with legal requirements designed to promote the independence of investment research. Although we are not specifically prevented from dealing before providing this material, we do not seek to take advantage of the material prior to its dissemination.

Original Post

Fed Minutes In Focus, As Data Outlook Darkens
 

Related Articles

Michael Kramer
S&P 500 May Fall Another 15% By Michael Kramer - Jun 24, 2022 4

This article was written exclusively for Investing.comWhile stocks are down sharply on the year and cheaper in price, markets are still not reasonable from a valuation perspective....

Ipek Ozkardeskaya
Sentiment Is Better, News Is Not By Ipek Ozkardeskaya - Jun 24, 2022 2

The market sentiment is better, but the news is not. The latest flash PMI readings from Japan to Europe, and the US, showed a slowing global activity in June. Almost all regions...

Fed Minutes In Focus, As Data Outlook Darkens

Add a Comment

Comment Guidelines

We encourage you to use comments to engage with users, share your perspective and ask questions of authors and each other. However, in order to maintain the high level of discourse we’ve all come to value and expect, please keep the following criteria in mind: 

  • Enrich the conversation
  • Stay focused and on track. Only post material that’s relevant to the topic being discussed.
  • Be respectful. Even negative opinions can be framed positively and diplomatically.
  •  Use standard writing style. Include punctuation and upper and lower cases.
  • NOTE: Spam and/or promotional messages and links within a comment will be removed
  • Avoid profanity, slander or personal attacks directed at an author or another user.
  • Don’t Monopolize the Conversation. We appreciate passion and conviction, but we also believe strongly in giving everyone a chance to air their thoughts. Therefore, in addition to civil interaction, we expect commenters to offer their opinions succinctly and thoughtfully, but not so repeatedly that others are annoyed or offended. If we receive complaints about individuals who take over a thread or forum, we reserve the right to ban them from the site, without recourse.
  • Only English comments will be allowed.

Perpetrators of spam or abuse will be deleted from the site and prohibited from future registration at Investing.com’s discretion.

Write your thoughts here
 
Are you sure you want to delete this chart?
 
Post
Post also to:
 
Replace the attached chart with a new chart ?
1000
Your ability to comment is currently suspended due to negative user reports. Your status will be reviewed by our moderators.
Please wait a minute before you try to comment again.
Thanks for your comment. Please note that all comments are pending until approved by our moderators. It may therefore take some time before it appears on our website.
Comments (1)
Shriram Raja
Shriram Raja May 25, 2022 14:03
Saved. See Saved Items.
This comment has already been saved in your Saved Items
So fomc not going to be positive at all . its clesrly seems
 
Are you sure you want to delete this chart?
 
Post
 
Replace the attached chart with a new chart ?
1000
Your ability to comment is currently suspended due to negative user reports. Your status will be reviewed by our moderators.
Please wait a minute before you try to comment again.
Add Chart to Comment
Confirm Block

Are you sure you want to block %USER_NAME%?

By doing so, you and %USER_NAME% will not be able to see any of each other's Investing.com's posts.

%USER_NAME% was successfully added to your Block List

Since you’ve just unblocked this person, you must wait 48 hours before renewing the block.

Report this comment

I feel that this comment is:

Comment flagged

Thank You!

Your report has been sent to our moderators for review
Our Apps
DOWNLOAD APPApp store
Investing.com
© 2007-2022 Fusion Media Limited. All Rights Reserved.
Risk Disclosure: Trading in financial instruments and/or cryptocurrencies involves high risks including the risk of losing some, or all, of your investment amount, and may not be suitable for all investors. Prices of cryptocurrencies are extremely volatile and may be affected by external factors such as financial, regulatory or political events. Trading on margin increases the financial risks.
Before deciding to trade in financial instrument or cryptocurrencies you should be fully informed of the risks and costs associated with trading the financial markets, carefully consider your investment objectives, level of experience, and risk appetite, and seek professional advice where needed.
Fusion Media would like to remind you that the data contained in this website is not necessarily real-time nor accurate. The data and prices on the website are not necessarily provided by any market or exchange, but may be provided by market makers, and so prices may not be accurate and may differ from the actual price at any given market, meaning prices are indicative and not appropriate for trading purposes. Fusion Media and any provider of the data contained in this website will not accept liability for any loss or damage as a result of your trading, or your reliance on the information contained within this website.
It is prohibited to use, store, reproduce, display, modify, transmit or distribute the data contained in this website without the explicit prior written permission of Fusion Media and/or the data provider. All intellectual property rights are reserved by the providers and/or the exchange providing the data contained in this website.
Fusion Media may be compensated by the advertisers that appear on the website, based on your interaction with the advertisements or advertisers.
  • Sign up for FREE and get:
  • Real-Time Alerts
  • Advanced Portfolio Features
  • Personalized Charts
  • Fully-Synced App
Continue with Google
or
Sign up with Email