FOMC Delivers, Markets Cheered
17 March 2022
Wednesday was a very joyful day in the markets as US indices jumped 3%, EU bourses booked circa the same gains, and US yields continued in the upward trajectory.
The Financial Times reported late Wednesday that Ukraine and Russia had made significant progress towards a potential peace plan. This headline revived optimism for a ceasefire, but the Ukrainian side has reportedly rejected the proposed neutrality. So the conflict will likely continue...
Elsewhere, the Fed raised the interest rates for the first time since 2019, bringing the fed funds to range 0.25 - 0.50%. In addition, the Summary of Economic Projections, the so-called dot-plot, revealed that policymakers were expecting six more hikes this year, with the policy rate hitting 1.9% by the end of 2022 before rising to 2.8% by the end-2023.
The initial reaction was a downside in stocks, metals, and upside in yields and USD, but following Powell's presser, trends reversed, sending US stocks sharply higher. Nevertheless, US yields hit new cycle highs - the 2-year yield jumped to 2%, while the 10-year yield rose above 2.2%.
Later today, the Bank of England is expected to deliver another rate hike, increasing the primary rate to 0.75%. As with the Fed, the BoE will likely continue raising rates throughout the year. The GBPUSD pair has climbed above solid resistance of 1.3160, and today's BoE hike could send it further higher above 1.32.