By Mohamed Hashad, Chief Market Strategist, Noor Capital.
The minutes of the latest Federal Reserve’s monetary policy meeting as well as inflation data attracted most attention across trading markets for the week.
The US dollar closed last week’s trading in an upward direction on the back of signals as well as messages included in FOMC Minutes for May’s meeting that was concluded on May 1, highlighting that there is a tendency within the Federal Open Market Committee to maintain the interest rate at the current record high.
The US Dollar Index, which measures the performance of the US currency against a basket of major currencies, rose to 104.75 points compared to last week’s closing, which recorded 104.48 points. The index fell to its lowest levels on Thursday’s trading day at 104.64 points, compared to the highest level; at 105.12.
FOMC Minutes reflected growing concerns among Fed’s policymakers about making further progress in combating inflation, as members indicated that they lack the confidence necessary to begin reducing interest rates, after the Federal Reserve issued the minutes on Wednesday.
FOMC Minutes showed that there is concern among Fed monetary policy makers about progress towards reducing interest rates soon. The minutes also mentioned that “meeting participants saw that while inflation declined over the past year, the past few months showed the absence of further progress in bringing inflation down to the committee’s target of 2.00%.”
Wall Street
US stocks showed an overall negative performance in the week ending May 24, 2024, due to the several remarks by Fed officials as well as the FOMC minutes of Fed’s recent meeting, and the data releases that supports Fed’s hawkish stance so far.
FOMC minutes revealed that “many participants expressed their willingness to return to quantitative tightening of monetary policy in the event that risks of rising inflation emerge in one way or another, as long as this measure is appropriate.”
Participants also believed that “maintaining the interest rate at current levels in this meeting was supported by the data that has been released since the previous meeting, which shed light on the continued strong economic growth.”
Members of the Federal Open Market Committee expressed optimism about the future growth prospects, despite the expectations echoed by some of them that growth may show modest performance in the near future.
The Minutes added: “It will take longer than expected for us to have greater confidence in a decline in inflation,” stressing that many members of the Federal Open Market Committee showed a state of uncertainty about the current amount of monetary policy tightening.
The Dow Jones Industrial Average fell to 39,061 points after losing about 612 points, or 1.6%. The Standard & Poor’s 500 index also fell to 5,298 points after losing about 22 points, or 0.7%, and the Nasdaq Heavy Technology Industries followed the same path, losing about 184 points, or 1.1%, settling at 16,920 points.
Only the Nasdaq Heavy Technology Index escaped the clutches of decline, which achieved weekly gains during that period of about 1.1%, which was most likely a result of the record gains achieved by the “NVIDIA” company’s stock.
NVIDIA’s stock rose to a new record high of $1,000 for the first time, last Wednesday, with a boost from the financial performance results for the first quarter of 2024, which highlighted profits that exceeded expectations for the electronic chip giant.
US Bond Yields
US bond yields were largely positive, having benefited greatly from rising expectations that interest rates will remain unchanged at current high levels for some time.
These expectations were based on the results of the Federal Reserve meeting held in early May, which indicated a tendency among members of the Federal Open Market Committee to slow down the rate cut due to the lack of sufficient confidence that inflation may decline in a sustainable manner.
There is a strong relationship between US Treasury yields and interest expectations. Rising expectations of lowering interest rates lead to a decline in these yields, while declining expectations could lead to a rise in government bond yields.
Yields on benchmark ten-year bonds rose to 4.470% at the close of trading in the week ending May 24, compared to the previous weekly close, which recorded 4.446%. Returns on these securities fell to their lowest level over the past week at 4.418%, compared to the highest level recorded at 4.497%.
Euro, Interest Expectations
The euro fell at the end of last week, weighed down by signs that US inflationary pressures will continue to increase amid doubts surrounding the possibility that the recovery of the Eurozone’s economy will lead to several rate cuts by major central banks this year.
The EUR/USD pair recorded a decline to 1.0853 in the week ending May 24, compared to the previous weekly close, which recorded 1.0862. The pair rose to its highest levels during that period at 1.0873, compared to the lowest levels recorded at 1.0809.
However, investors became more cautious after European policymakers warned against quantitative easing after next June, stressing their keenness to avoid inflation returning to sharp peaks.
Oil’s Performance
Global oil prices declined over the week ending May 24 due to concerns about the possibility that strong US economic data would keep interest rates at record high levels, which would curb fuel demand.
Prices will likely rise due to the potential strength of demand next summer. These expectations come amid questions that concern investors in the markets as to whether the selling operations may stop soon.
Federal Reserve members and policymakers are questioning whether interest rates are high enough to rein in inflation. She also indicated that some members of the Federal Open Market Committee were inclined to raise interest rates if inflation rose again.
But Jerome Powell, Chairman of the Federal Reserve, and some members of the US central bank ruled out raising interest rates in the next stage.
Cryptocurrencies
The US Securities and Exchange Commission, SEC, has approved applications by Nasdaq, CBOE, and the New York Stock Exchange to list Ethereum futures ETFs, paving the way for the trading of this financial product later this year.
But the issuers of these funds must get the green light before launching this new product. The decision issued Thursday was a surprising victory for the applicants of these applications and the companies operating the blockchain networks that operate cryptocurrencies and their trading platforms.
It was widely expected in the markets that the US Securities and Exchange Commission would reject this request, but it began to show a completely different position with expectations when it requested amendments to those requests several days ago, which it followed by approving the launch of these unconventional financial products.
Nine companies, including “Fanic”, “ARK Investments”, “21Shares” and “BlackRock”, hope to obtain the approval of the American authority to establish investment funds traded in spot contracts for the second largest cryptocurrency in the markets.
The Week Ahead
Investors in global financial markets are awaiting inflation data with great interest, as data releases have been in the spotlight recently due to their close relationship to the future path of monetary policy.
Next week, the Federal Reserve’s most reliable and reliable Personal Consumption Expenditures, PCE, readings will appear, in which investors seek to know what might happen in terms of US inflationary pressures, and whether their intensity is increasing or decreasing.
Earnings reports, which provide a clear picture of the financial performance of the largest companies listed on global stock indices, also top the markets’ interest. Next week will show earnings for Dell Computer, retail giants COTSCO and Dollar General among other important companies.
Important economic data is also awaited, led by US housing indicators as well as consumer confidence readings in the United States. Next week is the last week before Fed officials are requested to stop making public statements, so it will be important to follow up on their remarks starting Monday.