OPINION
Market Rating Before FOMC MeetingJan 31
SP500 relieves off the US Treasuries' Pressure
SP500 index, which is the leading global stock markets, has moved to end the descending trend of the last 30 days.
The leading index, which retreated from its all-time peak of 4 819 points on January 3 to 4 221 points due to the strong sales pressure and erased its gains of almost 7 months, started to raise concerns about heading towards a bear market.
Inflation Expectations
In the United States, which is the largest economy in the world, expectations that the Federal Reserve would increase interest rates after consumer inflation reached its highest level in 40 years with 7 percent.
As a result of this, while the benchmark 10-year US treasury yields rose to around 1.89 percent in the debt market, there was strong pressure on emerging country currencies and especially stock market indices. In particular, SP500 index declined to 4 221, which was the level observed on June 21.
In the first FOMC meeting of 2022, the Committee decided to keep the rates unchanged at 0 - 1/4 and informed the markets that asset purchases will end at the begining of March. Pointing to March for the first rate hike, the Committee announced that the balance sheet reduction will start after the fund target range begins to increase. At this point, cautious tone of communication by Chair Powell reduced the stress on the markets.
Following the FED's critical January meeting, 10-year US treasury yields reached 1.75, the short-term psychological limit line, while SP500 recovered up to 4 593 points.
Reflections of Strong Nonfarm Payrolls
Last Friday, U.S. Department of Labor's Bureau of Labor Statistics (BoLS) released its labor force statistics for January. Non-farm payrolls increased by 467k, tripling the expectation 100k and the unemployment rate converged to full employment, registered as 4.0 percent.
Afterwards, expectations that the US economy no longer needs ultra-loose monetary support led the market participants believe that the Fed's first rate hike in March will be 50 basis points, not 25. And US 10-year treasuries hit 1.97, the highest level since August 2019, and SP500 fell to 4 445.
However, the usual pricing associated with the Fed's interest rate hikes has not been permanent due to the hawkish central banks of North America and other major countries, especially Europe and England. In other words, the forecasts that the Fed's strong monetary tightening will put growth in the US economy at risk in the coming periods started to be raised, preventing the usual movements in the markets.
On the third trading day of the week, the US 10-year index fell by 0.04 basis points to trade at around 1.93 percent, while SP500 index is around 4 550. When SP500 was around this level in the past, 10Y treasury yield was 10 points higher than the today's yield.
It is still not clear whether the Fed will increase rates by 50 bps in March meeting or decide to distribute this rate hike over coming meetings including the one in March. And the Federal Reserve will put an end to these discussions on its meeting dated March 15 - 16.
The leading index, which retreated from its all-time peak of 4 819 points on January 3 to 4 221 points due to the strong sales pressure and erased its gains of almost 7 months, started to raise concerns about heading towards a bear market.
Inflation Expectations
In the United States, which is the largest economy in the world, expectations that the Federal Reserve would increase interest rates after consumer inflation reached its highest level in 40 years with 7 percent.
As a result of this, while the benchmark 10-year US treasury yields rose to around 1.89 percent in the debt market, there was strong pressure on emerging country currencies and especially stock market indices. In particular, SP500 index declined to 4 221, which was the level observed on June 21.
In the first FOMC meeting of 2022, the Committee decided to keep the rates unchanged at 0 - 1/4 and informed the markets that asset purchases will end at the begining of March. Pointing to March for the first rate hike, the Committee announced that the balance sheet reduction will start after the fund target range begins to increase. At this point, cautious tone of communication by Chair Powell reduced the stress on the markets.
Following the FED's critical January meeting, 10-year US treasury yields reached 1.75, the short-term psychological limit line, while SP500 recovered up to 4 593 points.
Reflections of Strong Nonfarm Payrolls
Last Friday, U.S. Department of Labor's Bureau of Labor Statistics (BoLS) released its labor force statistics for January. Non-farm payrolls increased by 467k, tripling the expectation 100k and the unemployment rate converged to full employment, registered as 4.0 percent.
Afterwards, expectations that the US economy no longer needs ultra-loose monetary support led the market participants believe that the Fed's first rate hike in March will be 50 basis points, not 25. And US 10-year treasuries hit 1.97, the highest level since August 2019, and SP500 fell to 4 445.
However, the usual pricing associated with the Fed's interest rate hikes has not been permanent due to the hawkish central banks of North America and other major countries, especially Europe and England. In other words, the forecasts that the Fed's strong monetary tightening will put growth in the US economy at risk in the coming periods started to be raised, preventing the usual movements in the markets.
On the third trading day of the week, the US 10-year index fell by 0.04 basis points to trade at around 1.93 percent, while SP500 index is around 4 550. When SP500 was around this level in the past, 10Y treasury yield was 10 points higher than the today's yield.
It is still not clear whether the Fed will increase rates by 50 bps in March meeting or decide to distribute this rate hike over coming meetings including the one in March. And the Federal Reserve will put an end to these discussions on its meeting dated March 15 - 16.
