Wall Street traders are on hold, anticipating the Federal Reserve's upcoming decision. All eyes are on Jerome Powell to see if he will dampen the market's interest rate cut expectations.
Amidst this anticipation, equity futures showed minimal movement even after the S&P 500 reached a new all-time high. Bonds remained stable, offering little relief to investors who have faced losses this year, with diminishing hopes for a significant policy shift from the Fed.
The focus is now on the Fed officials' interest rate forecasts, known as the “dot plot”, which will indicate the expected direction of policy adjustments in 2024 and 2025. Additionally, the central bank's plans for its $7.5 trillion balance sheet, which is undergoing quantitative tightening by not replacing maturing securities, will be a key point of discussion.
Experts are divided on Powell's approach: will he maintain the hawkish stance seen in January, or echo the dovish tones from his recent Congressional testimony? The consensus leans towards a hawkish outlook, given the sticky inflation and robust economic indicators. Yet, the intrigue lies in the "dot plot" and any potential hawkish shift it may reveal.
The debate between a 50 bp versus 75 bp cut persists, with long-term implications for 2025 and 2026. Any increase in the long-run dot could negatively impact the Treasury market across the board.
Market participants are closely watching for any signs from Powell regarding his views on inflation's trajectory and any comments on quantitative tightening. Moreover, the possibility of the Fed retracting a rate cut could signal concerns over persistent inflation, raising questions among investors.
A hawkish Fed could trigger market volatility, whereas a dovish stance might fuel the 2024 rally further. Corporate updates highlight significant developments, including Intel Corp.'s substantial funding for semiconductor factory expansion and Boeing Co.'s financial strain due to the 737 Max jetliner issues. JPMorgan Chase & Co.'s dividend increase, Apple Inc.'s outreach in China, and other corporate movements reflect the diverse financial landscape.
This week's key events include economic indicators and earnings reports, with the Eurozone's PMI, the Bank of England's rate decision, and earnings from Nike and FedEx among the highlights.
Market movements show a cautious stance, with minimal changes in stock futures and a slight increase in the Bloomberg Dollar Spot Index. Cryptocurrencies saw modest gains, while commodities experienced a downturn, with crude oil and gold prices falling.
