Trading Activity Picks Up; FOMC Minutes Take Center Stage

By: Miguel A. Rodriguez

09:38, 04 January 2023

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Today's main event is the FOMC meeting minutes from the latest Federal Reserve meeting. With a 10-year bond yielding 3.78%, the Fed is expected to raise rates by 25 basis points at its next meeting. 

The first day of the year, when the major markets open for business, starts with the same lack of definition that marked the market in the last days of 2022.   

 

The December manufacturing PMIs for China and the United States did not surprise, with figures very close to forecasts. Both cases were still below 50, the growth threshold, so they did not affect market asset performance. The same thing happened with German CPI data, which experienced a significant drop for the first time without impacting the market.  

 

With all this, the North American stock market indices had a rollercoaster day. It started the session with gains, trailing the European indices' strong performance, only to lose steam throughout the day and end with losses comparable to or greater than the main benchmark indices.  

 

Today's main event will be the FOMC meeting minutes from the most recent Federal Reserve meeting. This publication will reveal the voting members of the Federal Open Market Committee's bias and forecast future monetary policy steps in the United States. The Fed is now expected to raise interest rates by as little as 25 basis points at its next meeting, with a 10-year bond yielding 3.78%. Typically, the more dovish the Fed's bias, the better the stock market performance; however, the most important thing to know is the terminal interest rate for federal funds rather than the Fed's next decision. 

 

On the other hand, the European indices have continued to ascend on their second trading day of the year. A drop in inflation, such as those reported in Germany yesterday, may have contributed to this improved performance. Typically, a drop in inflation weighs on stock indices, but recent weaker inflation figures have underpinned indices amid dovish monetary policy sentiment. The German DAX Index is still trading above the 13900 support level and the 100- and 200-day moving averages, indicating a positive technical outlook.  

 

The US dollar was not spared from this situation on a day when asset movements were erratic, with American stock markets and market interest rates experiencing ups and downs.   

 

The US dollar started the day stronger against all of its peers before losing ground but remaining positive throughout. At the same time, the EUR/USD pair fell slightly more than a figure while the market awaits FOMC minutes, which will most likely provide further direction for the greenback. 

 

 

 

Sources: Bloomberg, Reuters 

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This information/research prepared by Miguel A. Rodriguez does not take into account the specific investment objectives, financial situation, or particular needs of any particular person. The research analyst primarily responsible for the content of this research report, in part or in whole, certifies that the views about the companies and their securities expressed in this report accurately reflect his/her personal views and consequently any person acting on it does so entirely at their own risk.The research provided does not constitute the views of KW Investments Ltd nor is it an invitation to invest with KW Investments Ltd. The research analyst also certifies that no part of his/her compensation was, is, or will be, directly, or indirectly, related to specific recommendations or views expressed in this report.The research analyst in not employed by KW Investments Ltd. You are encouraged to seek advice from an independent financial adviser regarding the suitability of the investment, under a separate engagement, as you deem fit that conforms to your specific investment objectives, financial situation, or particular financial needs before making a commitment to invest. The laws of the Republic of Seychelles shall govern any claim relating to or arising from the contents of the information/ research provided.