The Fed's hawkish minutes signaled faster rate hikes and balance-sheet cuts, sending stocks down sharply: Nasdaq 100 fell 3.3%, tech stocks hit hardest as Treasury yields rose. Markets now price an 80% chance of a March rate hike, up from later-year expectations.
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Okay, very good morning. It's Thursday, 6th of Jan. Hope you're well. I'm gonna talk straight about the FOMC minutes last night, which of course were hawkish if you've not already seen. And we did see quite a distinct move across asset classes last night. All 11 sectors in the S&P 500 finished down. The S&P was down around 2%, the Dow 1%, the The Nasdaq 100 was down around 3.3%. So one of the largest sell-offs there that we've seen in some time as tech companies, software, semiconductor shares were particularly hard hit as Treasury yields rising once again, prompting investors to kind of rotate away from some of those growth stocks that are more rate sensitive. So what exactly did Powell say? And then we'll have a quick look at the actual market moves. Well, Here it is. The Federal Reserve official said a strengthening economy, higher inflation could lead to earlier and faster interest rate increases than previously expected, with some policymakers also favoring starting to shrink the balance sheet soon after. The reason why that's so critical is usually there's some kind of layover time between then each form of policy tightening to just see how the market acclimatizes to the new normalization, if you like, of of policy. And what they're saying is that those timelines are shortening. So what we actually saw in terms of reaction was equity markets came under selling pressure. You can see here in the center chart, this is the NASDAQ 100. The S&P 500 looked very similar. So as you can see here, the trigger point very much being those FOMC minutes. And we continue to kind of hand that negative baton on to the Asia-Pac session where we declined further before finding a bit of a floor here at the European Open. And then elsewhere, gold, similarly with rising US yields and a firming US dollar on the back of that hawkish minutes release, did weigh on the yellow metal. Strategically, from a technical perspective, finding a bit of support just around this 1,800 psychological level, which was the low that we saw back on the 4th and the 3rd of this month. And then elsewhere, currency pairs, as you can see, EURUSD cable trended lower. and T-notes, then a reflection of that higher yield movement, just continued to tick lower. And if you look at actual US yields, that's been a pretty much a continuous pattern that we have been seeing. Overnight swaps markets now move to price in an 80% chance now of a 25 basis point hike at the Fed's meeting in March. Remember, much of what the general Wall Street consensus was over recent months has been a rate hiking really June, SEP, and DEC of next year. That's been brought forward now following not only the minutes, but we also had yesterday the latest US ADP figure, which showed that companies in December added the most jobs in 7 months. And of course, this heightens now expectations for the official labor report from the BLS on Friday, nonfarm payrolls. If that's also a really strong figure, all the more cemented that market view will become. So firmer yields and dollar continuation, and that's hurting some of those tech rate yield sensitive names more than, than in the NASDAQ rather than the S&P 500. That's really the main thing to talk about. Otherwise, just quickly looking at some of the other headlines in the mix, we have got overnight in terms of Asia, the Chinese Caixin services PMI came in at 53.1. That was above the expected 51.7. Activity in China's services sector expanded at a faster pace in December amid higher demand and easing inflationary pressures, but continuing small-scale COVID-19 outbreaks, the analysts said, did continue to weigh on the outlook. Whereas over in Germany, we've had some data this morning, and actually surprisingly good industrial orders or factory orders came in at 3.7% for November, above the expected 2.1%. The previous was also revised up. German factory orders then rising in November, giving the economy cause for optimism after another quarter that was somewhat characterized by record numbers of COVID-19 infections. The other thing to mention was Bitcoin. Bitcoin dipped overnight towards $43,000. The futures market did break through some quite key short-term support, excuse me. Of recent sessions. So this is looking at Bitcoin futures on 30-minute. You can see here going back to really the end of last year and the beginning of this year, we broke down through that $45,500 level and that just meant a bit of a spillover and added momentum. And interesting to see the correlated moves here. This move not coming right on 7 o'clock, but did come amid some of those bigger other asset class movements, namely yields and dollar moving higher. Bitcoin also moving lower then in tandem with some of the stocks' move. And on a daily continuation chart now, you can see here the, the, the relevance of some of those technical areas of interest. So those December lows and around that aforementioned 45.5 level, the breakdown of price there really brings into contention now the September lows. And if actually, if I just shift this chart over a little bit, that's actually also quite a key area of resistance back to the summer and June, July tops of price action in the Bitcoin future. So that means then that we're trading at $43,000 at the moment. $41,000 is a downside area of support, so could be potential for a continuation of some short-term Bitcoin weakness there. In step with some of that movement, as you would imagine then, some of the other cryptocurrencies following suit. We had Ether took out its flash crash bottom to reach prices not seen since around the mid-October time. Binance Coin also dropped to October levels as well in the overnight session. A quick look at the calendar for the day ahead. We have got the German state CPIs coming out this morning. You've already had North Rhine-Westphalia come out, printed at month-to-month reading of 0.5%. That's against a previous of -0.3%. We'll be looking out for Brandenburg, Hesse, and Saxony all at 9 o'clock. And then really it's quite quiet for the morning. Attention will be in the afternoon. We've got US initial jobless claims, and you've also got the ISM Services PMI, which will be of interest. Analysts are expecting a slight pullback from the most elevated levels of 69.1 last month. The December reading headline expected at 66.9. However, a couple things— we already had the manufacturing number come out at the beginning of the week for the ISM readings in the US. The employment constituent did actually rise from 53.3 to 54.2. But keeping an eye, given the inflationary focus of markets at the moment, on the prices paid component in the manufacturing sector, that actually dramatically dropped from 82.4 to 68.2, moving to the lowest reading since November 2020. So keep an eye on that as well as the constituent reading for that services report later. Factory orders from US also comes out at 3:00. And then from a speaker perspective, there's no one of note on the docket. And you've got some French supply hitting the tape with a 3, 10, and 30-year bond announcement coming out of US Treasury this afternoon. I'm gonna leave it there, pretty short and sweet. As you can hear, I sound a little bit like Barry White, so I'm gonna preserve my voice for the time being and wish you guys all a good day ahead. And yeah, any questions at all, feel free to leave me a comment, and I'll see you tomorrow. Thanks very much.
