Anticipation looms in the markets ahead of the FOMC meeting minutes release on Thursday at 6 am AEDT.
The minutes from the January FOMC meeting will be released on Thursday at 6 am AEDT.
At the meeting, the FOMC increased the Fed Funds rate by 25 bp to 4.5-4.75%. The smaller move followed a 50 bp increase in December and four gigantic 75 bp rake hikes before that.
The Fed said that further rate increases would be required in the statement that accompanied the decision.
“The Committee anticipates that ongoing increases in the target range will be appropriate in order to attain a stance of monetary policy that is sufficiently restrictive to return inflation to 2 percent over time.”
However, in the press conference that followed, Fed Chair Powell raised expectations that rates were close to a peak, noting that the “disinflationary process has begun” and that it was “certainly possible” the Fed would keep its benchmark rate below 5%.
The events that have transpired since the January FOMC meeting, including a run of hot economic data and hawkish Fed speeches, have rendered the Fed meeting minutes and accompanying comments mostly outdated.
Yields have moved sharply higher, leaving the US interest rate market almost fully priced for 25 bp rate hikes in March and May and 70% priced for a 25 bp rate hike in June which would take the Feds target rate to 5.25-5.50%.
A terminal Fed Funds rate with a five handle in front of it doesn’t seem quite enough in the context of an inflation rate still at twice the Feds target and an unemployment rate at 3.4%, the lowest level since 1969.
In the past, higher yields and expectations of additional Fed rate hikes would have undercut equities and other risk assets. However, with the market swapping the “hard landing” narrative of Q4 2022 to one of “no landing” in Q1 2023, US equities have been well supported.
Their resilience relates to the idea that equity markets can withstand higher rates if strong economic growth drives yields as opposed to a hawkish Fed playing catchup to runaway inflation.
S&P 500 technical analysis
With that thought in mind, providing the S&P 500 remains above uptrend support and the 200-day moving average 3985/50, allow the rally from the October lows (viewed as countertrend or corrective) to reach the August 4327 high before fading.
Aware that a sustained close back below the 200-day moving average and uptrend support 3985/50 would confirm that the rally from the October lows has been corrective and the downtrend has resumed.
S&P 500 daily chart
Nasdaq technical analysis
Providing the Nasdaq remains above the support from the 200-day MA at 12,000, allow the rally from the October low to extend past resistance from the recent 12950 high towards the August 13,740 high before fading.
Aware that a sustained close back below the 200-day MA of ~12,000 would confirm that the rally from the October lows has been corrective and the downtrend has resumed.
Nasdaq daily chart