4.12pm: Fed minutes offer hope for smaller rate increases
US markets ended the day in positive territory as investors digested the FOMC meeting minutes which showed Federal Reserve officials earlier this month agreed that smaller interest rate increases should happen soon as they evaluate the impact policy is having on the economy.
At the close the Dow Jones Industrial Average advanced 96 points to 34,194, the S&P 500 jumped 22 points, or 0.56%, to 4,026 and the Nasdaq Composite rose 111 points, or 0.99%, to 11,285.32.
Reflecting statements that multiple officials have made over the past several weeks, the meeting summary pointed to smaller rate hikes in the future.
Markets widely expect the rate-setting Federal Open Market Committee to step down to a 50 basis point increase in December, following four straight 75 basis point hikes.
Though hinting that smaller moves were ahead, officials said they still see little signs of inflation abating.
However, some committee members expressed concern about risks to the financial system should the Fed continue to press forward at the same aggressive pace.
“A substantial majority of participants judged that a slowing in the pace of increase would likely soon be appropriate,” the minutes stated.
“The uncertain lags and magnitudes associated with the effects of monetary policy actions on economic activity and inflation were among the reasons cited regarding why such an assessment was important.”
Ian Shepherdson, chief economist at Pantheon Macroeconomics suggested the minutes showed that “The hawk/dove battle lines for the next few meetings are becoming clear.”
He noted some dovish policymakers argued "that there had been an increase in the risk that the cumulative policy restraint would exceed what was required to bring inflation back to 2%."
He said he expects this idea will be much more in focus at the next few meetings, especially in light of the emerging upward trend in jobless claims, potentially signaling a real shift in the labor market.
“We continue to expect the Fed to hike by 50bp in December but then by only 25bp in January, with no further hikes” he said.
12:05pm: PMI data shows November decline
The major US indices stayed steady at noon, despite the latest set of purchasing managers’ index (PMI) numbers showing a decline in American manufacturing and services in November.
At midday, the S&P 500 was up by 0.1% at 4,008, the Nasdaq Composite was up by 0.4% at 11,214, while the Dow Jones slid into the red, down by 0.06% to 34,076 points.
Fawad Razaqzada, market analyst at StoneX, said inflation is everywhere and still very hot.
“Recent US data as well as things like falling shipping costs, energy prices, and easing supply constraints all suggest the worst may be over," Razaqzada wrote in a report.
"That does not mean everything will cost less, of course, but the rate of price increases will slow down. But worryingly, we are getting more and more recessionary signals, and this is what’s going to drive financial markets going forward."
He noted that the US dollar fell sharply again today as concerns intensified that the economy is heading for a recession after a poor set of PMI numbers came out from the services and manufacturing sectors.
The manufacturing PMI fell into contraction at 47.6 compared to 50.4 last month, while the services PMI slipped to 46.1 vs. 48.0 expected and 47.8 in October.
“An economic slowdown is expected to weigh on inflation, reducing the need for the Fed to maintain an aggressive tightening stance," Razaqzada wrote.
"For now, stock markets have remained supported as optimism over a less hawkish Fed is outweighing growth concerns."
The major movers at noon included Tesla and Deere, both up by 5%, while Warner Brothers Distribution rose by 3.7% and Target was up by 2.8%.
On the downside, AutoCad maker Autodesk (NASDAQ:ADSK) fell by 6.2% despite meeting analyst expectations on 3Q earnings and revenues, while Schlumberger slid by 3.7% and Moderna dropped by 2.6%.
9.35am: Caution prevails ahead of Fed minutes
US stocks opened largely unchanged on Wednesday, the last full trading day this week ahead of the Thanksgiving long weekend.
Just after the market opened, the Dow Jones Industrial Average had added 26 points at 34,124 points, the S&P 500 was flat at 4,004 points, and the Nasdaq Composite was up 7 points at 11,182 points.
Forex.com market analyst Joshua Warner noted that stocks were trading cautiously higher this morning as markets were awaiting the release of the minutes from the Federal Reserve’s last meeting to gauge how the central bank might act at its next meeting in December.
“The minutes will reveal how individual members feel about interest rates and the pace they want to see them rise going forward,” he said. “Markets are currently pricing in a 75% chance that the Fed will slow its next rate rise to 50bps, with a 25% chance for another 75bps hike, according to the CME FedWatch Tool.”
Meanwhile, initial jobless claims for the week ending November 19 came in at 240,000 claims, the highest reading since mid-August and ahead of the consensus analyst expectation of 225,000.
6.30am: Fed in focus ahead of Thanksgiving
US stocks are expected to open flat to higher on Wednesday ahead of the release of minutes from the Federal Reserve’s rate-setting deliberations earlier this month when it lifted interest rates by another 75 basis points, with more interest on the pending Thanksgiving holiday.
Futures for the Dow Jones Industrial Average were up 0.1% in pre-market trading, while those for the S&P 500 were also 0.1% higher, while contracts for the Nasdaq-100 were flat.
James Hughes, chief market analyst at scopemarkets.com said the minutes could yet prove pivotal if there is clear messaging within them as to just how much further rates will go up.
US rate-setters have delivered four consecutive interest rate increases of 75 basis points this year as they try to rein in runaway inflation.
Investors will be hoping that with key indicators of inflation starting to ease, rate-setters may be starting to consider scaling back on future interest rate increases.
The minutes are due for release at 2.00pm ET. The focus will also fall on US new home sales figures for October due at 10.00am ET today.
“Again any suggestion that this is running hot despite rising interest rates will again suggest there’s more that needs to be done in terms of limiting inflationary pressures. Earnings news is also looking depressed ahead of the long weekend,” noted Hughes.
Elsewhere, a surge in the number of COVID-19 infections in China and the threat of lockdowns in the world’s most populous country are keeping investors wary about slowing global economic activity although US stocks rose sharply on Tuesday in spite of this.
“Once again it was optimism that the Fed’s monetary policy tightening exercise may be coming to a close that drove Wall Street higher during Tuesday’s session, although renewed concerns over winter COVID lockdowns in China arguably tempered gains,” said Hughes.
“With Wall Street closed on Thursday and only open for a truncated session on Friday, given the overriding air of uncertainty there may be a temptation to de-risk during the day,“ he concluded.
Contact the author at jon.hopkins@proactiveinvestors.com