The U.S. dollar appreciated during the week against major pairs. The currency got a boost from the release of the minutes from the January Federal Open Market Committee meeting. The brief statement was slightly hawkish, but the full notes from the meeting revealed the U.S. central bank upgraded its economic projections from those made in December and expects the 2% inflation target to be met in the mid-term.
Volatility soared in equity and fixed income markets in the final hours of yesterday’s U.S. trading session. After dropping to 17, the Cboe Volatility Index gained 19%, ending the day above 20. The S&P 500 reversed a gain of 1% to end the day 0.55% lower. Similarly, the Dow Jones gave up 470 points from peak-to-trough, while U.S. Treasury yields spiked across the curve, and 10-year yields breached 2.95% for the first time in four years.
The most important event this week is the release of the Minutes from January’s European Central Bank meeting on Thursday. Remember, it was the release of the December minutes on Jan. 11 that sent the euro on a two-day run of 1.8%...
After last week’s big drops in the equity markets, things have definitely calmed down. The major indices across Europe have started the day positively, following a positive close on Wall Street the day before.
When markets are priced for perfection, a slight shift in sentiment causes much damage. This is what we saw last week, after U.S. jobs report showed wage growth accelerated at its quickest pace since mid-2009.
Crude oil and the stock market took great red-hot economic news and tried to turn it into bad news. Red hot economic data, unlike anything we have seen in years, raised fears that the Federal Reserve would have to move quickly and raise interest rates. Yet, what the economic data is saying about potential future energy demand is almost mindboggling and the fracker better get fracking as we may have a hard time meeting future demand.
Is this the beginning of a deeper selloff or just a short-term shake out? Lets first step out of the forest to see the trees; the S&P 500 is still up 3% on the year. What caused last week’s selling? It's difficult to pinpoint one main catalyst but here are a few. First and foremost, we discussed a trend line on last Monday’s Morning Express at the 2850 area which would be critical to keeping this immediate-term uptrend intact.
U.S. equity markets posted their biggest one-day loss since August 2017 with the Dow dropping 362 points and the S&P 500 losing 31.10, both over the 1% mark. The fall came just hours before the President gave his State of the Union speech on Capitol Hill and hailed the strength of the U.S. economy, the strength of the stock market and the continued trend of job creation.