Futures in the United States and Europe are trading lower as investors continue to digest the FOMC minutes’ message and await the release of unemployment claims data later today. The Federal Reserve considers the labour market’s health when deciding on future monetary policies. However, the American labour market has been performing well in recent months, indicating that it is ready for interest rate hikes to prevent inflation from rising further. Furthermore, stock traders will keep a close eye on the G20 meeting, which is set to occur today. G20 meetings are significant because they bring together finance ministers from 20 powerful economies, including the United States, the United Kingdom, Germany, and Japan. These global finance ministers’ comments to the press may cause volatility in stock markets.
In yesterday’s session, the Dow Jones Industrial Average declined 0.16%, and the S&P 500 index jumped 0.09%. The Nasdaq, the tech-savvy index, dipped 0.11%, while the Russell 2000 jumped 0.14%.
Stock markets reacted positively to FOMC minutes released yesterday as Fed doves still seem to be in control, and markets are expecting that the Fed will likely stick to four hikes this year. Before the release of the FOMC minutes, investors were concerned that the Fed would become more aggressive to control the highest inflation seen in nearly 40 years. Remarks by St. Louis Fed President James Bullard bolstered this theory, prompting markets to price in seven 0.25-per cent interest rate hikes in 2022. The FOMC minutes, on the other hand, show a more dovish stance, which has helped to calm investor concerns and improve investor sentiment.
In addition to the interest rate talks, the FOMC minutes also shed light on how the Fed plans to reduce its balance sheet exposure worth nearly $9 trillion. The Fed’s balance sheet majorly comprises bonds that the American central bank has bought to pump liquidity into markets to support the American economy. Investors should also note that the tapering of bond purchases is also expected to end in March. However, many members of the FOMC are of the view that the Fed should end its bond purchase programme sooner to indicate to markets that it is seriously working on controlling inflation.
Moving onwards, the conflict between Russia and Ukraine could also add to the volatility in stock markets. Earlier this week, there were reports that Russia was withdrawing its troops from near Ukraine’s borders. However, as per Washington, no troops have been ordered to leave the area. Instead, 7,000 soldiers have been added to the already deployed 150,000. According to officials in Washington, Russia’s actions do not support the stance that it is looking forward to a diplomatic solution.
The state of Colorado is considering accepting digital coins as payment for taxes. Historically speaking, Colorado has been a relatively crypto-friendly state and was among the first government bodies to adopt blockchain technology into its systems. To turn this idea into a reality, Colorado will likely have to partner with a crypto company so that it can smoothly accept cryptocurrencies as payment from its citizens. However, we should keep in mind that paying taxes with digital coins will likely not affect the treatment of tax transactions. Moreover, citizens will also have to be mindful regarding the source of the crypto funds.
Crude oil prices have resumed their upward trend following comments from a Washington official that Russia does not appear to be seeking a diplomatic solution and has instead added troops to its borders with Ukraine. Even outside of the Russia-Ukraine conflict, rising demand for oil is outpacing supply in the markets, implying that crude oil is under enormous upward pressure. As a result, both Brent and WTI reached their highest levels since 2014 earlier this week. Brent rose to $96.78 per barrel, while WTI fell to $95.82 per barrel.
The Russian-Ukrainian dispute has been supporting gold prices over the past few days as investors have been purchasing the precious metal to hedge against potential volatility in stock markets. Moreover, rising consumer prices are also helping gold prices climb higher. However, moving forward, investors should understand that monetary tightening by the American central bank could drag gold prices down.
The dollar index depreciated after the release of the Fed minutes yesterday. Looking into the minutes, it seems like the Fed is not as hawkish as investors were expecting it to be and may not raise the number of interest rate hikes carried out this year. Risky currencies like the euro appreciated. Treasury yields also declined modestly, with the yield on 10-year treasury bonds at nearly 2.02% on Wednesday.
Asian Pacific Markets
Exports from Japan came in much lower than expected. The rise in exports was 9.6% annually, while the expected number was 16.5%. On the other hand, Australia was able to outperform its forecasted jobs added in January by adding 12,900 jobs in the period. Australia’s unemployment rate also remained stable at around 4.2%.
As of 12.20 a.m. EST, the Nikkei dipped 1.00%, and the Shanghai index hopped 0.35%. The Hang Seng index in Hong Kong slumped 0.62%. The ASX 200 index climbed 0.04%, and the Seoul Kospi rose 0.58%.