S&P 500 sideways near 4,470 after “dovish” Minutes, ignores geopolitical conflicts

  • The S&P 500 is trading sideways, having bounced to around 4,470 on the back of “dovish” Fed Minutes despite negative geopolitical headlines.
  • The index had been trading lower before the release of the minutes after US retail sales boosted the Fed’s tightening bets.

The release of the Fed’s minutes from the January 25-26 meeting, followed shortly thereafter by a flurry of headlines related to US and NATO concerns about the continued Russian military build-up on the Ukraine border, has made US stock market trading conditions choppy. Markets appear to have interpreted the Minutes as dovish, which helped fuel a rally from the previous session’s lows. The S&P 500 it is now trading at the 4,470 zone and close to session highs at 4,480, where it is trading flat on the day, having traded as low as 4,430. Better-than-expected January US retail sales report released on Wednesday ahead of the US open has been weighing on stocks earlier in the session as the likelihood of a more hawkish Fed increases .

The Fed’s latest meeting minutes apparently did not indicate any desire to raise rates at a faster than usual rate of 25 bps per minute, which may explain the market’s dovish reaction. Indeed, US money markets have revised down the implied odds of a 50bp move at next month’s meeting to around 44% from almost 60% on Tuesday. However, analysts have noted that the latest upside surprises in consumer and producer price inflation have likely made the views seen in the latest Minutes release out of date. Recall that following the release of the January CPI report, Fed policymakers (and 2022 voter) James Bullard said that it had become much more aggressive.

That is, perhaps stock markets shouldn’t look too hard into the release of the latest Minutes and should pay more attention to what Fed members are saying right now, with their comments reflecting the most recent economic developments. What to watch out for, there are a lot of Fed speeches on Thursday and Friday. While the release of the Fed Minutes has momentarily distracted attention from other negative geopolitical headlines, investors may soon begin to worry about the risk of war between Russia and Ukraine.

Shortly after the Fed Minutes were released, US officials again warned that despite Russia’s pledge to partially withdraw troops from the Ukraine border, it is actually building up. Intelligence reports from Ukraine and Estonia on Wednesday concurred with this analysis, with the latter’s intelligence chief recently saying that 10 new Russian battle groups would move to the Ukrainian border to join the 100 already there. The intelligence chief echoed US warnings that an escalation of fighting in Ukraine’s breakaway eastern provinces in Donbas is considered highly likely.

Looking back at US equities, the Nasdaq 100 Index has been trading within a range of 14.4-14,600 and is currently trading in the mid-14,500 area, down 0.5% on the day. Meanwhile, the Dow Jones has ranged between the 34.7-35,000 levels and is currently trading in the 34,800 area, down around 0.3% on the day. The S&P 500 CBOE Volatility Index (or VIX) is about a point lower and has dipped back below 25.0. Attention remains very focused on the geopolitical situation.

Additional technical levels

Source: Fx Street

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