Stock markets are enjoying modest gains ahead of the release of the Federal Reserve minutes later today. Last month, the US central bank signalled it might lift interest rates twice in 2023, and that caught some traders by surprise as only three months earlier, it did not forecast any hikes in the year question. This evening, traders will be listening out for any additional clues about what the Fed are thinking with respect to monetary policy.
To an extent, the minutes from the meeting are a little out of date because since the meeting in mid-June, we have seen several important economic announcements. Most notably, the non-farm payrolls report, which showed that 850,000 jobs were added in June but at the same time, the unemployment rate unexpectedly increased to 5.9%. Yesterday, it was announced the ISM non-manufacturing PMI reading slipped to 60.1, the lowest level since February. The internal components of the ISM update showed the employment metric fell from 55.3 to 49.3, a reading below 50.0 indicates contraction. There is no doubt the US economy has made a remarkable recovery over the past year but the minutes from the Fed meeting are likely to reiterate the point that the Fed’s economic targets are far from being achieved.
Stock markets lost ground and the US dollar rallied in the aftermath of Fed meeting in June but since then, we have seen the S&P 500 and the NASDAQ 100 go on to set new record highs. The US dollar is up this evening, and it has broadly been in an uptrend since the June meeting. It seems as if the Fed are not going to alter their policy anytime soon, but at the same time, they seem to be further down the route to monetary tightening than their counterparts in Europe, hence the relatively strong greenback.
In the last few hours, we have seen a move lower in gold and silver. It would appear the jump in the dollar has weighed on the metals. It is possible that profit taking is also playing into the mix as gold set a three-week high yesterday. The metal endured a painful fall in mid-June following the Fed’s announcement, and it seems that dealers are squaring up their positions in advance of the Fed minutes. Oil is undergoing a similar move to what it experienced yesterday afternoon. The energy is down over 2% as there is speculation the UAE might look to go it alone and lift output or ramp up oil sales to take advantage of the recent rally in the price.