2022/02/16 (004) Column

US Stocks End Mixed after FOMC Minutes,
since publication USD Remains Under Selling Pressure
Inflation worries force the Federal Reserve Bank to raise rates
– Gold Prices around 8 Month Highs, while Oil moves closer to 2014 Highs


Dollar Remains Under Selling Pressure

The dollar index lost further ground on Wednesday, bottoming around the 95.70 neighbourhood as investors reacted to an expected looming policy tightening cycle from the US Central Bank. Minutes from the Federal Reserve’s last meeting showed the central bank would not raise interest rates yet but strongly indicated a hike is on the way as soon as March, while it will start unwinding its nearly $9 trillion balance sheet. Still, geopolitical tensions kept sentiment in check. In the most recent developments, NATO officials accused Russia of concentrating troops at the Ukrainian border a day after Moscow insisted they had withdrawn some forces.

US Stocks End Mixed after FOMC Minutes

US stocks closed mixed on Wednesday, with the Dow down 53 points after shedding as much as 300 earlier in the session, Nasdaq declining by 0.1%, and the S&P 500 crossing over into positive territory as investors were digesting FOMC meeting minutes, latest data and geopolitical tensions. The minutes showed the Fed is ready to raise rates and shrink the balance sheet as soon as March as expected. On the data front, retail sales jumped 3.8% mom in January, more than estimated and rebounding from an upwardly revised 2.5% drop in December. Meanwhile, geopolitical tensions kept markets in check. In the most recent developments, NATO officials accused Russia of concentrating troops at the Ukrainian border a day after Moscow insisted they had withdrawn some forces.

Gold Prices Near 8-Month High

Gold prices extended gains above $1,870 an ounce on Wednesday, approaching levels not seen since June of 2021 and rebounding solidly from a 0.9% decline in the last session, as investors digested the FOMC minutes and lingering geopolitical risks. The US Fed strongly signaled a rate hike as soon as next month and laid out procedures on how to taper the central bank’s $9 trillion balance sheet. Meanwhile, NATO warned that Russia continues the military buildup near Ukraine, contradicting the Kremlin’s prior statements that some military district units were returning to bases.

Oil Moves Closer to 2014-Highs

WTI crude futures extended a rebound to above $94.2 per barrel on Wednesday, moving closer to a 2014-high of $95.82 hit on Monday and after falling more than 3.5% in the prior session as market participants see global oil supplies tight while assessing East-West relations. While NATO Secretary-General Jens Stoltenberg said that Russia was continuing its military build-up near Ukraine’s border and President Biden warned a Russian attack was still possible, the Kremlin said yesterday it was withdrawing some of its troops. Adding to the bullish tone, the latest EIA report showed crude holdings at the storage hub in Cushing, Oklahoma declined by 1.9 million
barrels to 25.8 million barrels, their lowest since September 2018. The report also showed a draw in gasoline and distillates inventories, while national holdings increased.

Lumber Hits 36-week High

Chicago lumber futures were trading around $1,350 per thousand board feet in mid-February, a level not seen since May 2021, underpinned by lean inventories while the large US home builders make their purchases necessary for the looming spring construction season. Canadian wood producers were hit by fire andflood, and infestations of wood-boring beetles, while the US decided to double its duty on softwood lumber from Canada. On the data front, sales of new homes in the US jumped by 12% in December from a month earlier as first-time buyers continued to flock to the housing market ahead of an impending interest rate hike, Commerce Department data showed.

Swiss Franc Remains Stable

The Swiss franc remained stable around 0.925 per USD in the first half of February, amid heightened geopolitical risk, soaring bond yields, and jitters of tighter monetary policy globally. Threats of an imminent Russian invasion in eastern Ukraine and the economic consequences of western retaliation increased the demand for safe haven assets, while the upward trend in bond yields and prospects of tighter monetary policy weighed down on the franc. Meanwhile, the Swiss National Bank remains committed to its ultra-loose monetary policy, as the latest labor data indicated that unemployment did not increase despite the Covid infection wave in January, while consumer inflation remains moderate.