Markets show muted response to FOMC minutes
The FOMC minutes passed without incident overnight. The committee felt that risks were balanced but that the economy remained far from the FOMC’s longer-term goals. Additionally, they expressed comfort that the recent rise in US bond yields reflected an improving economy and economic outlook. Once again, they emphasised that labour markets remain far from pre-Covid levels and seemingly, this forms the centre of FOMC thoughts and rightly so.
The nil-all draw from the FOMC minutes left stock markets drifting, although, in currency markets, the US dollar firmed as US long yields edged higher. Notably, the Australian and New Zealand dollars were amongst the worst performers, emphasising the currency markets (and probably stocks) are being bounced around by fast money flows.
US Initial Jobless Claims should drop below 700,000 this evening, but most of the attention will be on Federal Reserve Chairman Jerome Powell, who is making a speech at midnight SGT. As ever, markets will be hanging off every word Mr Powell utters, searching for signs of a change in Fed guidance since March’s FOMC meeting.
With the US economic risks weighted to the upside as their recovery gathers momentum, a slip of the tongue, deliberate or not, will likely see bonds and equities punished and the US dollar rally. Even more so as it is clear that despite equity market gains this week, financial markets, in general, are being dominated by schizophrenic fast-money flows looking for the next big thing as they chase their tails.
The European Central Bank releases their last policy meeting minutes this evening, although markets are well conditioned to some members’ perpetual inflation fears. They are not nearly as flammable as the FOMC minutes, however, and no fireworks should ensue. Overnight, German, French and Italian Services PMI’s for March all surprised to the upside. Covid-19 may hurt those numbers in April, but the readings overnight were enough to allow the euro to cling to its gains versus the US dollar.