Interesting morning with the Fed more hawkish than the market expected meaning that they dominated the last couple of hours trade. The Minutes showed that the Fed is still on track to continue tapering and that indeed they think the economy is now strong enough for rates to be higher in 2015 and 2016 than they previously thought. They also dropped the 6.5% guidance on employment in favour of a broader range of indicators which got the market in a funk.
As a result, the US dollar strengthened strongly while stocks fell.
At the close, the Dow fell 114 points or 0.7% to 16,222. The Nasdaq dropped 0.58% while the S&P lost 11 points to 1,861 for a loss of 0.6%.
Let’s face it – the S&P wasn’t off that much today but if you believe, as I do, that the Taper will continue till it hits zero and that rates will rise in the US unless the economy falls in a hole then the key prop underpinning the US stock market surge since 2009 is about to be kicked away.
That is the growth in the Fed’s balance sheet – the flow of buying not the stock – is slowing and will cease.
So Stocks should react as they did the last two times the Fed stopped buying and fall.
The weekly charts look similar and the candle on the monthlies is appalling.
A break of 1800 will confirm but the top just might be in.
Europe was mixed with the FTSE down 0.49%, the DAX up 0.37% and the CAC dropped 0.12%. Madrid and Milan were also mixed with Italian stocks off 0.29% while Spanish stocks rose 0.41%.
Locally on the ASX the March SPI 200 contract has fallen 34 points to 5324 bid.
On Forex markets it was a morning of US dollar strength, with the Aussie (0.9038), Euro (1.3829) and Pound (1.6535) all lower. Likewise USDJPY leapt higher to 102.43. Key here will be questions on FX traders’ minds about what, if anything the FOMC minutes mean to the recent weakness in the US dollar and whether this is enough to turn the trend in the recent amazing Euro strength and continuation of Aussie Dollar resilience. Only time will tell on the trend.
On Commodity markets, gold was poll axed and has broken out of the recent uptrend it has been trading in falling around $20 oz to $1329.95 this morning. Copper went the other way however rising to $3.02 lb after a big fall early in the day while Nymex Crude is back above $100 Bbl at $100.29. On the Ags the surge continues with wheat up 3.36%. Soybeans and Corn rose a less spectacular 0.92% and 0.31% respectively.
On the data front, it is very quiet at the moment although we might check the RBA’s foreign exchange transaction data when it is released this morning to see if they have been leaning on the market. After that there is little out other than German PPI and then US jobless claims, existing home sales and the Philly Fed Manufacturing Index.
Have a great day and good hunting