(Bloomberg) — Wall Street traders refrained from making any huge bets in the run-up to the highly anticipated minutes of the Federal Reserve’s latest policy gathering — with stocks, bonds and the dollar posting small moves.
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After staging a rebound in the first half hour of trading, the S&P 500 struggled for direction. The gauge has already given back more than half of this year’s rally and is trying to hang on to its 50-day moving average. Treasury two-year yields — which are more sensitive to imminent Fed decisions — dropped from the highest since 2007. The dollar fluctuated.
As the bulk of the latest repricing in US rates has been a result of a ramp-up in Fed bets, the minutes hold the potential to be “pivotal,” according to Ian Lyngen at BMO. He’s very skeptical about bigger hikes at this stage. Evercore’s Krishna Guha says the fact that rates have pushed up sharply — with big moves at longer tenors and associated tightening in wider financial conditions — makes a 50 basis-point boost less likely.
It’s as if “the market is doing some of the Fed’s work for it,” Guha said.
Despite the recent drumbeat of hawkish Fedspeak, Chair Jerome Powell hasn’t really tried to push back against loosening in financial conditions. However, since the latest rate decision, both labor market and inflation figures have come in hotter-than-expected — making market expectations adjust higher. US central bankers will publish minutes of their Jan. 31-Feb. 1 gathering at 2 p.m. Washington time.
Read: Fed Minutes to Show Support Level for Larger Hikes, Higher Peak
Before that happens, a Bloomberg survey of economists showed that inflation that’s proving increasingly stubborn will prompt the Fed to raise interest rates to an even higher peak level and hold them there through the year.
Forecasters boosted their projections for the Fed’s preferred inflation gauge — the personal consumption expenditures price index — for every quarter through the first half of next year. The metric is now seen averaging 2.4% on an annual basis in mid-2024 compared to 2.3% last month. They see a similar sluggishness in the subsiding of the consumer price index.
Aside from the Fed, traders kept an eye on some corporate highlights.
Intel Corp., the biggest maker of computer processors, slashed its dividend payment to the lowest level in 16 years, to preserve cash for investment. Investors will also be interested in hearing from one of this year’s top performers in the S&P 500: Nvidia Corp., which is due to report results after the closing bell.
Investors pinned hopes on the earnings season to push the S&P 500 somewhere — anywhere — out of a trading range it’s been stuck in for months. No luck.
Between JPMorgan Chase & Co.’s results that kicked off the announcement season and Walmart Inc.’s report on Tuesday that marked its unofficial end, the S&P 500 added 0.4%. This ties for the smallest earnings-season reaction in either direction since 2018, data compiled by Bloomberg show.
On a long-term horizon, the relative level of US tech stocks still looks elevated even after last year’s brutal selloff.
The Nasdaq 100 isn’t far off historic highs versus the S&P 500 and is still trading near the peak that marked the implosion of the dot-com bubble. The tech-heavy gauge slumped 33% last year in the worst crash since the 2008 global financial crisis, but has rallied 16% in the first weeks of 2023 on the optimism that the Fed will slow the pace of rate hikes and as earnings of some companies, like Meta Platforms Inc. and Tesla Inc., came in better than expected.
Geopolitical tensions also simmered on the background.
US President Joe Biden said Russian President Vladimir Putin made a “big mistake” in suspending participation in the New START nuclear treaty, his first direct response to the announcement. Biden made the brief remark Wednesday in Warsaw, ahead of a meeting with a group of eastern-flank NATO allies known as the Bucharest Nine.
Elsewhere, oil extended its longest run of losses this year. US natural gas futures fell below $2 for the first time since 2020, extending a massive selloff as traders give up on hopes of extreme cold boosting demand.
Key events this week:
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Eurozone CPI, Thursday
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US GDP, initial jobless claims, Thursday
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Atlanta Fed President Raphael Bostic speaks, Thursday
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BOJ governor-nominee Kazuo Ueda appears before Japan’s lower house, Friday
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US PCE deflator, personal spending, new home sales, University of Michigan consumer sentiment, Friday
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Russia’s invasion of Ukraine hits the one-year mark, Friday
Stocks
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The S&P 500 was little changed as of 10:54 a.m. New York time
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The Nasdaq 100 was little changed
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The Dow Jones Industrial Average was little changed
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The Stoxx Europe 600 fell 0.5%
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The MSCI World index fell 0.4%
Currencies
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The Bloomberg Dollar Spot Index was little changed
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The euro fell 0.1% to $1.0634
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The British pound fell 0.3% to $1.2073
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The Japanese yen rose 0.3% to 134.60 per dollar
Cryptocurrencies
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Bitcoin fell 2% to $23,721.6
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Ether fell 1.7% to $1,614.47
Bonds
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The yield on 10-year Treasuries declined five basis points to 3.90%
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Germany’s 10-year yield declined one basis point to 2.52%
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Britain’s 10-year yield declined two basis points to 3.60%
Commodities
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West Texas Intermediate crude fell 1.9% to $74.88 a barrel
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Gold futures rose 0.2% to $1,846.20 an ounce
This story was produced with the assistance of Bloomberg Automation.
–With assistance from Jan-Patrick Barnert, Vildana Hajric and Angel Adegbesan.
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