Stock futures are trying to bounce off yesterday’s lows as traders are digesting the Fed’s somewhat hawkish message. Yesterday, at the Fed meeting, it appeared that hawks were in total control of the Fed’s meeting as inflation expectations were revised higher and the hike in interest rates was brought a year earlier to 2023 than previously predicted.
FOMC Meeting
The Federal Reserve met yesterday to discuss its most recent monetary policy as well as its projections for major economic indicators. The Fed announced that it expects two policy rate hikes by the end of 2023. Because of an effective vaccination campaign and a decrease in Covid cases, economic recovery has accelerated, forcing officials to shorten the time frame within which they are likely to reduce monetary support within the United States.
Jerome Powell, Chairman of the Federal Reserve, also hinted at a reduction in bond purchases and a faster rate of monetary tightening than what was previously anticipated. The 0 to 0.25% range for the benchmark policy rate communicated in March 2020 has not been revised.
Not everything is negative as the Fed stuck to its mantra that rising inflation is only temporary and will most likely subside. However, it did revise its forecast for headline inflation in 2021 from 2.4% in March to 3.4%.
China’s Control On Financial Markets
In contrast to President Xi Jinping’s pledge to give markets more leeway in decision-making, China has tightened controls to reduce risks to its financial system. Over the last few weeks, officials have ordered state-owned enterprises to reduce their overseas commodity holdings, pushed domestic banks to increase their exposure to foreign currencies, capped thermal coal prices, censored searches for cryptocurrencies, and prohibited brokers from advertising bullish equity projections.
Going forward, Chinese officials are likely to continue to focus on risks at the micro level, discouraging institutions from holding risky assets and limiting their use of leverage.
Bitcoin
Over the last few weeks, crypto traders have been on a roller coaster ride. Bitcoin reached a high of $63,000 in April, up from less than $29,000 at the end of 2020, and is currently trading near $40,000. According to the Basel Committee, crypto assets are likely to have the strictest rules of any asset.
Despite the negative sentiment, as per an Intertrust survey of 100 hedge funds, these funds are very likely to significantly increase their holdings of cryptocurrencies by 2026. As per the poll, executives expect cryptocurrencies to account for 7.2% of their assets over the next five years. This equates to a total of $312 billion in digital assets for the entire sector.
Oil Demand
Traders should note that oil prices have risen for the past five days in a row as a result of supply cuts steered by OPEC+ and rising demand induced by a rapid economic recovery. Refiners in the United States have consumed more crude oil inventories in order to capitalise on higher prices and rising demand. Brent crude rose 40 cents to nearly $75 per barrel, reaching its highest price since April 2019.
Dow Jones Today
Many blue chip stocks in the Dow index rose by nearly 1%. Merck, JP Morgan, and Apple were among the best performers, while American Express, Verizon, and IBM were among the laggards.
Stock markets shook after the Fed stated that interest rates are likely rise sooner than previously anticipated and hinted at a long-term tapering of bond purchases.
After reaching all-time highs earlier this week, the Dow Jones Industrial Average fell 0.8% yesterday, while the S&P 500 fell0.5%.Likewise, the NASDAQ composite also declined by 0.8%. Volumes traded on the Nasdaq index were higher than those traded on the NYSE.
Asian Stock Markets
The Fed’s meeting had an impact on Asian markets as well.The Nikkei 225 in Tokyo declined by 1.18% and the Shanghai Composite Index rose by nearly 0.17%. Hong Kong’s Hang Seng index jumped 0.28% while the Seoul Kospi declined 0.38% as at 12.42 AM EST.
Coronavirus Update
The United States has been successful in controlling the outbreak of cases due to an effective vaccination programme. According to the CDC, as of Thursday, approximately 44.1% of Americans had been fully vaccinated, with 52.7% having received at least one dose. Since January, the number of new cases reported per day has decreased drastically, with 14,063 new cases and 434 new deaths reported on June 16.