Final countdown to Fed decision! On Wednesday (March 16), the US bond market suddenly “mutiny” : the yield of the 10 – and 30-year US bonds rose sharply to new highs, which triggered a sudden change of market sentiment, US stock futures extended losses, and most European stock indexes fell; In currencies, overall trading was light, but the dollar fluctuated higher, near the 92 mark as Treasury yields rose, with USDJPY as high as 109.229. Spot gold retreated, falling as low as $1, 727.70 an ounce. Today, the only focus events in global financial markets: Fed decision, monetary policy statement, the latest dot plot, economic expectations, and Powell’s press conference! In new vaccine development is good, the $1.9 trillion stimulus package signed under the boost of markets’ optimism for economic recovery to boom, investors’ expectations for the fed’s policy “to” also is increasingly intense, focused on Wednesday the FOMC resolution, lattice figure and economic forecasts, and whether it will have to recent Treasury yields soaring latest statement.
European and U.S. stocks: European stocks were mostly down during the session, with major European indexes trading as shown in the chart below at press time:
European stocks opened mixed, but investors awaited the release of new economic and interest rate forecasts from the Federal Reserve on Wednesday, Yahoo Finance reported. Britain’s FTSE 100 was down 0.3 percent in early trading, while France’s CAC and Germany’s DAX were down 0.1 percent.
The move follows concerns about the speed with which the Novel Coronavirus vaccine has been rolled out in continental Europe and a rise in cases in Germany. Several countries, including France, Germany, Spain, Italy and Sweden, halted AstraZeneca vaccinations in response to reports of blood clots in some patients.
In the U.S. stock market, the bond market suddenly rioted ahead of the announcement of the Fed’s decision, and Treasury yields jumped sharply to a new high: The yield on the 10-year Treasury note climbed to 1.657%, the highest since February 2020. The yield on the 30-year Treasury note rose to 2.419 per cent, the highest since November 2019.
In addition, the US 2-10 year Treasury yield curve spread is more than 150 basis points. That also caused U.S. stock futures to extend intraday losses, with S&P 500 futures down 0.24% and Nasdaq futures extending losses to 0.75%.
Currency market, the dollar shock rebound close to the 92 mark. FX168 noted earlier that the DXY rose for a fourth straight session, trading not far from the key psychological resistance 92.00 on the back of continued firmer Treasury yields.
Indeed, the yield on the key 10-year Treasury note will continue to break above the 1.60 per cent mark, always dependent on the performance of the US economy, the launch of vaccines and investors’ views on higher inflation in the coming months.
Technically, a break above 92.50 should lead to a test of 92.73(200-dma) for 94.30. On the other hand, initial support below is 91.36, followed by 91.05, then 90.80(50-dma).
Gold: Gold came under pressure as Treasury yields recovered, falling below 1730. Jeffrey Halley, senior market analyst at OANDA, said gold’s real test will come after the Fed’s rate decision.
“The market is watching to see if the subsequent rise in bond yields will affect the performance of gold.” Avtar Sandu, senior commodities manager at Phillip Futures, said the whole market is waiting for the Fed’s decision and gold is technically bearish.
Super big! The FOMC decision is bound to trigger a global market riot
The U.S. Federal Open Market Committee (FOMC) began its two-day policy meeting on Tuesday, and Fed Chairman Jerome Powell will hold a press conference after the rate decision is released on Wednesday local time, according to the latest report from Yahoo Finance. That could indicate whether the U.S. central bank will adjust its interest rate outlook, according to Yahoo Finance.
Moreover, market participants expect interest rates to rise. According to a survey by Macrodesiac, 77 per cent of people expect rates to rise by 2023, and 35 per cent think they will rise by the end of 2022.
Russ Mold, chief investment officer at AJ Bell, said: “Eastern and Western markets were quiet on Wednesday, while European and Asian markets barely moved.”
“The Fed seems content to keep monetary policy ultra-loose in an attempt to keep the economy growing even as it recovers from the effects of the epidemic. “The fixed income market has become a bit nervous, but so far the equity market seems to be happy with it.”
“As a result, markets will want to know what any increase in US economic expectations means for monetary policy and when interest rates are likely to rise. No policy changes are expected at the meeting, but comments from the Fed will be closely watched for any clues as to what action it may take over the next two years.”
Beyond that, the focus will be on any hints that the Fed will scale back its bond-buying program and how it will respond to the recent rise in government bond yields.
So far, Powell has been relaxed about the rise in bond yields, saying it was a natural consequence of optimism about the chances of a strong rebound as the US economy reopened and the $1.9tn stimulus package signed into law by US President Joe Biden last week.
Naeem Aslam, chief market analyst at Avatrade, said: “So far, market players have been betting on one thing and that is the Fed chairman’s commitment to keep monetary policy on hold. Speculators believe that the US has had enough recovery to make it unnecessary to continue aggressively dovish monetary policy. But time will only tell what the Fed thinks about it.”
Since the FOMC’s last meeting in January, the yield on the 10-year Treasury note, an indicator of longer-term interest rates, has surged by more than 60 basis points. Some forecast that inflation could rise to 1.8 per cent in the coming weeks on hopes of economic recovery.