FOMC minutes were clearly hawkish yesterday. Participants saw increased need of earlier (than previously expected) rate hikes. More importantly many members saw a need of balance sheet reduction soon after the lift off process begins (confirming leaks from WSJ)
- As a result USD gained while stocks plunged from near-record levels. S&P500 (US500) declined by 1.94%, Dow (US30) by 1.07% and Nasdaq (US100) by as much as 3.34%.
- Precious metals also tanked as bond yields soared. Gold spot trades just above $1800, down more than $20 vs pre-minutes levels.
- Fed hawkish turn got even more momentum as it’s accompanied by very strong data. The ADP report showed 807k new jobs in December in the private sector (the most since May) despite Omicron surge.
- EURUSD slid below 1.13 and GBPUSD reversed sharply from 1.36 even as UK government relaxed travel restrictions.
- Solid data from China (PMI services up 1 point to 53.1) and Germany (orders up by 3.7% m/m in November after a slump in October) help DE30 recover over 100 points and it’s back above 16000
- Russian block intervenes in Kazakhstan amid protests adding stress to emerging markets. USDRUB is up 1.3% as the Russian ruble is the weakest of major EM currencies today.
- Australia sees a record of covid cases amid Omicron variant. AUD is the weakest among major currencies.
- Cryptos are down amid risk off environment. Ethereum closes in on $3400 while Bitcoin tests $43000
The Dow (US30) has been resilient so far to hawkish Fed talk – will it use November highs as a base for a rebound?
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