Morning Minutes

Investors Digest Interest Rate Hikes and Await Employment Reports




With the US Federal Reserve Board (yesterday afternoon) and the Bank of England (this morning) both raising their benchmark interest rates by 0.75% as expected, continuing the general trend toward monetary tightening, stock markets and commodities around the world have been under pressure, while US treasury yields (10-year back up to 4.10% today) and the US Dollar have been rallying again.

US index futures are down 0.5% to 1.0% today, adding to yesterday’s US index losses of 1.5% to 3.3%. The Dax is down 1.2%. Indices turned sharply downward late yesterday after Fed Chair Powell indicated at his press conference that the US central bank has no plans to pause interest rate increases and that even if the pace of hikes slows, the terminal rate for this tightening cycle is likely to move higher from previous forecasts, which was read as hawkish by investors.

The potential for more monetary tightening in the US sparking a US Dollar rally and more COVID lockdowns in China has impacted expectations for resource demand and put pressure on commodity prices. So far today, WTI Crude Oil is down 1.0%, Natural Gas is down 3.9%, Copper is down 1.9% and Platinum is down 2.9%. In currency action, Gold is down 1.4%, while the Canadian Dollar and Euro are down 0.4%-0.6%.

The biggest action today has been in the UK. Even though the Bank of England raised interest rates and started Quantitative Tightening this week, two MPC members voted for smaller rate hikes and the statement suggested “further increases in (the) Bank Rate may be required for a sustainable return of inflation to target, albeit to a peak lower than priced into financial markets” which investors have taken as significantly less hawkish than what Powell from the Fed said yesterday. The FTSE, while down 0.5%, has popped up from earlier lows, and the Pound is down 1.3%.     

In economic news, US weekly jobless claims (217K vs street 220K) were slightly better than expected. Canada posted a smaller than expected trade surplus ($1.14B vs street $1.34B). there are still a number of significant  economic reports on the way this week. At 10:00 am EDT today, US factory orders (street 0.3%), and ISM Service PMI (street 55.5) are due. Tomorrow brings US nonfarm payrolls (street 200K vs previous 263K) and Canada jobs (street 10K vs previous 21K). The average hourly wage inflation reports for the US (street 4.7% vs previous 5.0%) and Canada (previous 5.2%) may also attract attention from investors.

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Colin Cieszynski, Chief Market Strategist

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

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