Federal Reserve Releases Minutes from its Latest Policy Meeting
22nd February 2023
Overnight Asia
European equity futures fell alongside shares in Asia after the worst day in two months for US stocks as investors priced in higher interest rates. Contracts for the Euro Stoxx 50 edged lower and shares in Australia, Japan and mainland China fell. Hong Kong’s Hang Seng Index fluctuated after falling earlier in the day to levels that would mark a 10% correction from its late-January high. US futures were up marginally after the S&P 500 tumbled 2% on Tuesday in a decline that touched all major sectors, while the tech-heavy Nasdaq 100 dropped 2.4%. Weak forecasts from US retailing bellwethers added to the negative tone. The benchmark 10-year Treasury yield slipped slightly after rising 14 basis points on Tuesday. Australian yields trimmed their gains after weaker-than-expected wages growth data, which also weighed on the Australian Dollar.
The Dollar was flat after an overnight rally against Group-of-10 currencies. Purchasing managers’ Index readings for services and manufacturing that came in stronger-than-expected underpinned gains in Treasury yields and the currency.
The yield on 10-year Japanese government debt touched 0.505%, breaching the Bank of Japan’s threshold for a second day as traders prepared to hear from the new Central Bank governor nominee.
The New Zealand Dollar edged higher versus the greenback after the Central Bank raised interest rates 50 basis points. While the increase marks a downshift from prior hikes, policy makers still see higher rates ahead.
Elsewhere, oil dropped, with the price of Brent Crude extending a Tuesday decline that has curtailed a recent rally driven by expectations of growing Chinese demand.
In Hong Kong, officials said the stock exchange was exploring arrangements to allow continuous trading through severe weather. Trading in shares and other types of securities can be halted when typhoons and other extreme weather events hit.
US Market Wrap
A renewed surge in Treasury yields took the wind out of the stock market, with geopolitical tensions and dire forecasts from bellwethers Walmart Inc. and Home Depot Inc. also souring investors’ mood. Wall Street’s growing fears that the Federal Reserve is nowhere near wrapping up its war against inflation — let alone pivoting — continued to burn bond investors who at one point were betting on rate cuts in 2023. As traders ramped up their Fed wagers, two-year US yields hit the highest since 2007. And the last ones to join the so called “everything rally” — equities — are now giving signs of running out of steam.
In a sell-off that engulfed every major group in the S&P 500, the gauge slid 2% — its worst sell-off since mid-December — wiping out its monthly advance. Over 90% of its shares fell. The Dow Jones Industrial Average erased its 2023 gains. Tech stocks underperformed, with the Nasdaq 100 down almost 2.5%.
The action in the US marked a shift in perception on rates. Investors are pricing in the federal funds rate climbing to around 5.3% in June. That compares with a perceived peak of 4.9% just three weeks ago and follows a ratcheting up of rhetoric from Central Bank officials over the past week.
If history is any guide, the stock market hasn’t indeed found a bottom yet. The S&P 500 hit a low only after the Fed stopped raising rates in previous hiking cycles, according to data compiled by Bloomberg, implying more downside if the trend holds true. US equities rallied 17% from an October low to a high in early February, before gains began to fade. The latest JPMorgan Chase & Co. client survey shows that equity positioning is still skewed toward the bearish percentile and only 33% of respondents said they are likely to increase exposure in the coming weeks.
Investors also kept a close eye on the recent geopolitical developments. President Vladimir Putin said Russia will suspend its observation of the New START nuclear weapons treaty with the US, a decision Secretary of State Antony Blinken called “irresponsible.” President Joe Biden hit back at Putin, saying he would never win his war in Ukraine.
Meantime, the White House won’t be afraid to sanction Chinese companies that support Russia’s invasion of Ukraine, Deputy Treasury Secretary Wally Adeyemo said.
Some of the main moves in markets:
Stocks
- The S&P 500 fell 2.00% as of 4 pm New York time
- The Nasdaq 100 fell 2.40%
- The Dow Jones Industrial Average fell 2.10%
- The MSCI World Index fell 1.60%
DISCLAIMER: This information is taken from various sources and is not to be relied on to make any financial or investment decisions. THE INFORMATION IS FOR INFORMATIONAL PURPOSES ONLY. Neither the information nor any opinion contained herein constitutes a solicitation or offer to buy or sell any securities, futures, options or other financial instruments or provide any investment advice.
Categories : Financial Updates