Morning Minutes

Hawkish Fed Talk Sends Yields Climbing, Stocks Slumping




Yesterday’s bearish shift in sentiment toward equities has continued overnight and into this morning. US index futures are adding to yesterday’s index losses with Dow futures down 0.7% and NASDAQ futures down 1.6% after the Dow fell 0.8% and the NASDAQ fell 2.2% on Tuesday. Over in Europe, the Dax is down 1.7% while the FTSE is down 0.3%.

Despite talk of potentially more sanctions against Russia, there doesn’t appear to be a spike of fear out there. The Euro is holding steady while defensive havens like the Japanese Yen and Gold are both down about 0.2% today. This suggests that investors appear to be primarily focusing on hawkish comments out of the Fed yesterday.

Fed Vice Chair nominee Lael Brainard, an Obama/Biden appointee, has historically been one of the most dovish governors at the Fed. Yesterday, she highlighted the importance of getting inflation down and hinted that the Fed could start “to reduce the balance sheet at a rapid pace as soon as our May meeting”, in addition to continued interest rate hikes. Later in the day, the need to fight inflation was echoed by San Francisco Fed (historically one of the more dovish regional Fed banks) President Daly.

With Fed members previously considered to be on the more dovish side turning hawkish, investors responded by driving up traded interest rates, sending the 10-year treasury note yield up toward 2.60%, giving the US Dollar a boost and putting a headwind in front of stocks. Cryptocurrencies are also down today with Bitcoin falling 2.0% and Ethereum sliding 4.1%. The one bright spot so far today has been energy contracts with WTI Crude Oil up 1.4%, Brent Crude up 1.0% and Natural Gas up 4.5%.

Later today, minutes from the last Fed meeting are due but these may be overshadowed by more recent comments from Fed officials. Canada Ivey PMI is out later this morning (street 60.0) but the next main events north of the border are tomorrow’s Federal Budget, Friday’s employment report and next week’s Bank of Canada meeting.     

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Colin Cieszynski, Chief Market Strategist

Colin Cieszynski, CFA, CMT
Chief Market Strategist
+1 (647) 282-4428

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