US stock markets extended falls overnight as the meeting minutes of the January FOMC minutes failed to give details about the criteria for a Fed pause and noted that a “few” members called for a 50 bp rate rise to slow inflation.

The stronger-than-expected data since the meeting took place, particularly the January Jobs report and higher-than-expected CPI and PPI released, had made the minutes mostly updated.

The U.S. interest rate market has since added two 25 bp rate rises to the expected Fed peak rate (from 4.9% to ~5.4%), and now prices a not insignificant 27% chance of a step up to a 50 bp rate hike when the Fed meets in March.

Supporting the idea of a step up, St Louis President James Bullard, one of the most accurate and hawkish Fed voices during its tightening cycle, said fears of a recession were overstated and reiterated his thoughts that a more aggressive interest rate hike now would give the Fed a better chance of taming inflation.

As noted in our preview earlier in the week, 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.

With the Q4 2022 earnings season now in the home straight attention into the end of this week will focus on the release tonight of Jobless claims which are expected to rise by 6k to 200k. As well as the release on Friday of the Fed’s preferred measure of inflation on Core PCE is expected to remain unchanged at 4.4% YoY.

With key equity markets wobbling under pressure from higher yields, there isn’t much breathing room for either of these prints to come in much hotter than expected.

S&P 500 technical analysis

Overnight the S&P 500 tested and held the uptrend support at 3990 from the October lows. Not far below is the all-important 200-day moving average (MA) at 3950. If the 3990/50 support band holds, this would allow the rally from the October low (viewed as countertrend or corrective) to resume towards the August 4327 high before fading.

Aware that should the S&P 500 see a sustained close below 3990/50, it would confirm that the rally from the October lows has been corrective, and the downtrend has resumed.

S&P 500 daily chart