4.10pm: US markets rally in late trading
US markets closed higher, shrugging aside the minutes from December’s FOMC meeting which signalled there would no let-up in the commitment of Fed officials in their battle against inflation.
At the close the Dow Jones Industrial Average was up 133 points, or 0.4%, to 33,270, the S&P 500 rose 29 points, or 0.75%, to 3,853 while the Nasdaq Composite advanced 72 points, or 0.69%, to 10,459.
“Participants generally observed that a restrictive policy stance would need to be maintained until the incoming data provided confidence that inflation was on a sustained downward path to 2%, which was likely to take some time,” the meeting summary stated.
Ian Shepherdson, chief economist at Pantheon Macroeconomics noted “FOMC members remain focused on current and inflation and inflation risks, with fear of overkill on monetary policy receiving very little attention.”
“In other words, don’t expect them to soften their inflation line until it becomes blindingly obvious that a serious shift in the data is underway.”
Others suggested the minutes suggested that the US economy is headed for recession as the central bank will remain aggressive in raising rates to cool inflation.
That was the warning from deVere Group’s CEO, Nigel Green who said “These minutes dash yet more hopes for an economic soft landing.”
“Investors are increasingly concerned that the Federal Reserve could now overtighten and will steer the US economy into a major recession.”
“Of course, the central bank will argue it needs to continue with rate rises to bring inflation back to target.”
“But it must also ensure that the tight labor market doesn’t overshadow the broader picture and continue to overdo the hikes, which would make a US recession deeper and longer.”
2.25pm: Fed remains committed to beating inflation
US markets eased after the minutes from December’s FOMC meeting showed Federal Reserve officials remain committed to fighting inflation and expect higher interest rates to remain in place until more progress is made.
At 2.30pm the Dow Jones Industrial Average was down 64 points at 33,073, the S&P was up 3 points at 3,827 and the Nasdaq Composite was up 8 points to 10,395.
“Participants generally observed that a restrictive policy stance would need to be maintained until the incoming data provided confidence that inflation was on a sustained downward path to 2%, which was likely to take some time,” the meeting summary stated.
Officials cautioned against prematurely loosening monetary policy but said they would focus on data as they move forward seeing “the need to retain flexibility and optionality” regarding policy.
The minutes also emphazised the importance to communicate that a slowing in the pace of rate increases was not an indication of any weakening in the battle against inflation.
At December’s meeting the Federal Reserve raised interest rates by 50 basis points following a series of 75bp increases.
Looking ahead the minutes showed that no FOMC members expect rate cuts in 2023 despite markets currently pricing the possibility of a small reduction in rates by the end of the year.
12:27pm: Investors look ahead to Fed minutes
At midday, the Dow was up 227 points, 0.7%, to 33,364, the Nasdaq Composite jumped 111 points, 1,1%, to 10,498 and the S&P 500 improved 43 points, 1.1%, to 3,868,
Traders reacted to this November's Job Openings and Labor Turnover Survey (JOLTS), which showed continued labor market strength when it came out this morning, according to reports.
However, all eyes are still very much on the Federal Reserve, as the minutes from the body's December meeting are set to be released this afternoon.
“This is very much wait and see mode,” said Art Hogan, chief market strategist at B. Riley Financial, according to CNBC. “After wrapping up a year that was pretty terrible on all fronts, there’s always going to be trepidation by investors to put money to work and we’re seeing that in real time at least in the first two trading days.”
9.35am: Investors optimistic but Fed minutes could dampen the mood
US stocks opened higher on Wednesday ahead of a slew of key economic data this week, including the release of the highly-anticipated minutes from the Fed’s December meeting today.
Just after the market opened, the Dow Jones Industrial Average had added 51 points or 0.2% at 33,188 points, the S&P 500 was up 11 points or 0.3% at 3,835 points, and the Nasdaq Composite had gained 39 points or 0.4% at 10,432 points.
Meanwhile, Tesla Inc (NASDAQ:TSLA) shares were up 2.4% after falling 12% yesterday as disappointing delivery numbers added to investor concerns about the EV maker.
OANDA senior market analyst Craig Erlam said equity markets were pushing higher on Wednesday, buoyed by softer yields and some promising PMI revisions in Europe.
“It would appear investors are increasingly coming around to the idea that central banks will be forced into cutting rates earlier than previously anticipated in order to support the economy,” he said.
“That would also suggest they anticipate inflation will subside faster than previously thought which would be welcome if true after a year of overshoots.”
But he noted that there was plenty more to come today that could potentially dampen the mood, most notably the Fed minutes from its December meeting.
“The central bank is determined to reinforce its hawkish stance on investors and prevent an unwanted loosening of financial conditions and the minutes could be another opportunity to do so,” Erlam said.
“Whether investors will be in the mood to listen is another thing.”
6.30am: Fed minutes in focus
Wall Street is expected to open higher after a shaky start to 2023 as traders look to the release of minutes from the latest Federal Open Market Committee (FOMC) meeting for direction.
Futures for the Dow Jones Industrial Average rose 0.3% in Wednesday's pre-market trading, while those for the broader S&P 500 index gained 0.4% and contracts for the Nasdaq-100 added 0.6%.
After a positive opening on Tuesday, stocks faltered and ended lower as falls in a number of tech heavyweights and weak manufacturing PMI data dented the mood.
“US markets were off to a shaky start for the year, with mixed economic data and disappointing developments from heavyweights Apple and Tesla eroding initial gains,” commented Richard Hunter, head of markets at interactive investor.
Tesla toppled by 12%, hitting its lowest level since August 2020, following weaker-than-expected fourth-quarter deliveries, while Apple shed 3.7% on reports that it will cut production due to poor demand. A broker downgrade by Exane BNP Paribas added to the downbeat mood surrounding the iPhone maker.
At the close on Tuesday, the DJIA was down 0.1% at 33,135, the S&P 500 shed 0.4% to 3,824 and the Nasdaq Composite fell 0.8% to 10,387.
“A weaker than expected manufacturing PMI print which remained in contractionary territory perhaps offered some early hope that the economy was beginning to respond to a tightening monetary environment, with weaker demand and production in evidence,” Hunter noted. “However, a later release showed that construction spending ticked up slightly in November, which would usually signal that the sector could be recovering."
Turning to today's main event, the FOMC minutes, Naeem Aslam, chief market analyst at AvaTrade said: “Traders and investors will closely watch it, and every word of the minutes is likely to be looked at by the market players twice as they will draw their conclusion about the Fed’s monetary policy. It is widely anticipated that the Fed isn’t done with its monetary policy yet.”
Apart from the FOMC minutes, the latest ISM Manufacturing PMI and JOLTS report will also be released today, which includes job openings and the quits rate.
“This is one that Fed officials focus on, and has continued to point to an incredibly tight labour market by pre-pandemic standards,” said Deutsche Bank strategist Jim Reid.