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Fed Projections Ignite US Dollar Rally, Commodity Selloff

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The main event of yesterday’s flurry of Fed news turned out to be the member projections. Investors appear to have latched on to number of FOMC members calling for 1-2 rate hikes in 2022 to 7 from 4 in the March projection, and the number of members expecting one or more rate hikes by the end of 2023 increasing to 13 from 7.0% from 6.5%, and for 2021 inflation to 3.4% from 2.4%. Although rate increases still appear to be a long way away, investors appear to be thinking at a minimum this reduces the changes of any more stimulus coming and could pave the way for the Fed to start reducing asset purchases later this year. The next potential significant events for the Fed are next week’s bank stress tests which may pave the way for them to resume dividends and share buybacks this summer, and the August Jackson Hole conference, a forum past Fed Chairs have used to hint at monetary policy changes.

The Fed news appears to have its largest impact on the US Dollar which is up 0.5% against the Euro and the Canadian Dollar this morning, and is soaring against precious metals, pounding gold down 4.0% and silver down 5.0% today. It’s also possible that precious metals, traditional hedges against inflation, may be reacting to the Fed’s inflation projection which is significantly lower than the most recent monthly consumer and producer price reports, suggesting that the central bank expects inflation pressures to ease in the second half of the year, perhaps reflecting recent declines in base metal, lumber and grain prices. The bond market has also reacted to the Fed news with the US 10-year treasury note yield popping back above 1.50% yesterday and consolidating gains near 1.55% this morning.

US stocks have been drifting downward at a moderate pact since yesterday’s Fed announcement. Dow futures are down 0.4% this morning, adding to yesterday’s 0.7% decline for the Dow Industrials. Commodities are also taking a hit this morning with WTI crude oil falling 0.6%, copper diving 2.6% and platinum plunging 4.9%.

In economic news today US weekly initial jobless claims were disappointing (412K vs street 359K). In earnings news, homebuilder Lennar beat street expectations ($2.65 vs street $2.36). Tonight the Bank of Japan is meeting.  

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Disclaimer: SIA Wealth Management Inc. (SIAWM) specifically represents that it does not give investment advice or advocate the purchase or sale of any security or investment whatsoever. This information has been prepared without regard to any particular investor’s investment objectives, financial situation, and needs. None of the information contained in this document constitutes an offer to sell or the solicitation of an offer to buy any security or other investment or an offer to provide investment services of any kind. As such, advisors and their clients should not act on any recommendation (express or implied) or information in this report without obtaining specific advice in relation to their accounts and should not rely on information herein as the primary basis for their investment decisions. Information contained herein is based on data obtained from recognized statistical services, issuer reports or communications, or other sources, believed to be reliable. SIAWM nor its third party content providers make any representations or warranties or take any responsibility as to the accuracy or completeness of any recommendation or information contained herein and shall not be liable for any errors, inaccuracies or delays in content, or for any actions taken in reliance thereon. Any statements nonfactual in nature constitute only current opinions, which are subject to change without notice.

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Colin Cieszynski, Chief Market Strategist
Market Commentary:

Colin Cieszynski, CFA, CMT
Chief Market Strategist
ccieszynski@siawm.com
+1 (647) 282-4428

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