US and European futures are trading a bit mixed as traders continue to digest the message from the FOMC Minutes released yesterday. The initial reaction in the US equity markets was positive as traders found some comfort in the Fed Minutes. However, economic weakness, suggested at by weak readings, is keeping traders worried about the Fed’s monetary policy as they intend to increase the interest rate by 50 basis points in the next few meetings.
In terms of the economic docket, we have the US GDP q/q number coming out today at 12:30 GMT and it will be closely watched by investors and traders. The forecast for the number is for -1.3%, while the previous reading was at -1.4%. In addition to this, we also have the US unemployment claims data due at 12:30 GMT, and the forecast is for 217K and the previous number 218K.
The Fed Minutes
At their meeting this month, Federal Reserve policymakers agreed to raise interest rates in half-point increments at their next two sessions, continuing an aggressive series of movements that would allow them to shift gears later if necessary. They also stated that policy may have to go beyond a “neutral” approach in which it is neither supportive nor restrictive of growth, which is an essential concern for central bankers and a factor that could reverberate across the economy.
Basically, according to minutes from the Federal Reserve’s meeting released Wednesday, policymakers highlighted the need to hike interest rates fast, maybe more than markets expect, to combat a developing inflation problem.
In addition to this, Fed Minutes also laid out a strategy to decrease the central bank’s $9 trillion balance sheet, which is primarily comprised of Treasuries and mortgage-backed securities, beginning in June. On the balance sheet, the objective is to allow a monthly cap of proceeds to roll off, which will total $95 billion by August, including $60 billion in Treasuries and $35 billion in mortgages. The minutes also suggest that an outright sale of mortgage-backed securities is feasible, given plenty of advance notice.
Members expressed worry about rising costs despite their belief that the Fed policy and the relaxation of various contributory variables, such as supply chain issues, paired with tighter monetary policy should assist the situation. Officials, on the other hand, warned that the crisis in Ukraine and the Covid-related lockdowns in China would worsen inflation.
The minutes of the May 3-4 meeting showed policymakers paying close attention to financial conditions as they prepare to boost rates further. Fed Chairman Jerome Powell took the extraordinary step of directly addressing the American public at his post-meeting press conference to emphasize the central bank’s commitment to managing inflation. As regulators confront the most intense pricing pressures in 40 years, the minutes reveal concern about potential financial market fault lines, as well as what rate level might limit demand.
References to possibly shifting to a more restrictive policy also indicate that authorities will not stop until inflation is on a clear path back to its 2% objective. It’s an approach that suggests policy will become more data-dependent following the Fed’s June and July meetings.
Financial-market volatility has risen in the weeks after the meeting as investors worry about the danger of a recession, though investors were encouraged by the report’s less-hawkish-than-feared tone. Stocks gained after the minutes were released, but Treasury note rates varied and the currency lost ground. Markets showed traders pricing in 100 basis point rate rises over the next two meetings.
In other news, tech stocks recovered after leading market losses the previous day. Intuit rose 8.2 percent after the tax software business posted higher-than-expected quarterly earnings and revenue, and the company boosted its expectations for the current quarter. DocuSign and Zoom Video both increased by more than 8%. Nvidia gained 5% ahead of its earnings report after the bell.
The top performing sectors in the S&P 500 were consumer discretionary and energy. They increased by around 2.8 percent and roughly 2 percent, respectively.
Despite the day’s improvements, all of the major averages remain far above their lows. The Nasdaq Composite, which outperformed the other indices on Wednesday, remains in bear market territory, having fallen over 29.5 percent from its 52-week high. The S&P 500, which has tried to avoid entering a bear market.