Fed statement eyed In Yellen's final meeting

January 31, 2018 08:51 AM

US markets bounce back from Tuesday’s month-end sell-off

U.S. equity markets are seen opening a little higher on Wednesday, reversing part of Tuesday’s declines ahead of the first Federal Reserve interest rate announcement of the year.

U.S. stocks came under pressure on Tuesday but with month end fast approaching and indices having recorded around 7% gains this month, as of last week’s close, it’s likely that much of this was driven by some rebalancing, rather than being a sign that investors are less bullish. It will be interesting to see how markets trade in the coming days but I don’t expect this to be the start of a broader decline.

As is the case for much of the week, there’s plenty for investors to focus on today. Donald Trump’s first State of the Union address offered little for markets to get excited about, with the President instead of taking to opportunity to showcase the triumphs of his first year in charge. This is broadly in line with expectations heading into the event itself and so investors now move on to the next of the week’s key events.

Fed statement key in the absence of press conference

The Fed monetary policy meeting will be the first of the new year and the last under the leadership of Janet Yellen, who will be replaced as Chair by Jerome Powell. Bearing that – and the fact that the central bank raised interest rates at the last meeting in December - in mind, we’re not expecting any changes today, but we may get some insight into whether the new tax reforms have altered the views of policymakers.

Of course, in the absence of a press conference with the Fed Chair, we’ll have to rely on the accompanying statement to provide fresh insight, at least until the minutes are released in a few weeks. A slight change in the statement can get quite a reaction in the markets though so traders as ever will be looking for any signs that future rate hikes are underpriced, given the recent changes. 

ADP number and earnings also in focus

Ahead of the central bank announcement, we’ll get some employment data from ADP which comes ahead of Friday’s jobs report. The ADP is seen as being indicative of the official Non-Farm Payrolls figure but in reality that is often not the case. Still, traders will be looking for signs that market expectations for January are way off the mark and so it always has the potential to move things in the markets. 

There’s also a lot of companies reporting fourth-quarter earnings today – including 34 from the S&P 500 and two from the Dow – which will be of interest to investors and could have an impact on overall market sentiment. Once again though, with it being the final trading day of the month, equity markets may not move entirely rationally today. 

About the Author

Craig Erlam is senior market analyst at OANDA who also writes for OANDA’s Market Pulse site, Marketpulse.com.