- Market sentiment remains subdued in the face of aggressive Fed action and fears of Russia.
- The Fed matched market forecasts with a 0.75% rate hike, but sees a painful path to rein in inflation.
- World leaders condemn Russia for its troop mobilization plans.
Global traders scramble to safety early on Thursday as the Fed’s hawkish move joins fresh fears around Russia and China. Keep in mind that the BoE and the SNB are due to announce their monetary policy moves today, which also keeps market players on edge.
10-year US Treasury yields rally to 11-year highs hit the previous day, rising three basis points (bps) near 3.55%, while its 2-year counterpart is up 0.75% intraday to 4.085% as maximum, near the highest levels in 15 years. In addition, Wall Street closed in the red and S&P 500 futures updated two-month lows around 3,770, down 0.70% intraday at time of writing.
Recently, President Volodymyr Zelensky declared that the neutrality of the country is ruled out and that an agreement can be reached on a basis other than the Ukrainian peace formula. Along the same lines were the comments made by the leaders of the Group of Seven (G7), who confirmed the cooperation in supporting Ukraine.
On Wednesday, Russian President Vladimir Putin’s announcement to partially mobilize troops also reignited geopolitical fears related to Ukraine and supply problems.
It is worth noting that Goldman Sachs revised down its GDP forecasts for China amid new economic problems, which in turn reinforces the state of risk aversion.
On the other hand, the US Federal Reserve (Fed) announced an interest rate hike of 75 basic points (bp), the third consecutive of this type, since it wants to placate inflationary fears even at the cost of a ” sustained period of below-trend growth” and a softening of the labor market. Fed Chairman Jerome Powell also noted that the path to taming inflation is not a painless one. While the Fed met market expectations, economic fears surrounding rate hikes and expectations of another 0.75% hike in November kept the dollar on the front line, despite strong volatility around to ads.
That said, the Dollar Index (DXY) renews its 20-year high, while commodities are on slippery ground of late.
Going forward, central bank actions and second-tier US data, not forgetting the risk drivers mentioned above, will be important for near-term market directions.
Source: Fx Street