- FOMC minutes: Many participants judged that the appropriate pace of balance sheet runoff would likely be faster than previously
- ADP December US employment survey +807K vs +400K expected
- Canadian November building permits +6.8% vs +2.3% expected
- Sources: Biden could announce remaining Federal Reserve nominees as soon as this week
- Boris Johnson: We do not need to shut down our country again. Cable hits 8-week high
- US weekly EIA crude oil inventories -2144K vs -3283K expected
- US December Markit final services PMI 57.6 vs 57.5 prelim
- Ford sales fell 17.1% in December y/y
- Gold down $5 to $1809
- WTI crude flat at $76.73 after touching $78.16
- S&P 500 down 92 points to 4700
- Nasdaq down 3.2%
- US 10-year yields up 3 bps to 1.698%
- EUR leads, CAD lags
It was a tale of two trading sessoins. The first half was generally risk positive with oil once again storming ahead despite a bearish inventory report. However everything changed after the FOMC minutes.
You can't point to a particular headline or quote from the report but there was abundant talk of shrinking the balance sheet and a high level of comfort with hikes. The ADP report had no immediate impact but we're likely in the good-news-is-bad-news phase for jobs ahead of non-farm payrolls and there's suddenly talk about 1m new jobs. That would only push the Fed to hike sooner and March is now at 80%.
The mood soured after the minutes but I'm not sure that's entirely the cause (as much as it would tie up a tidy narrative).
The tide has been going out on pandemic stocks like Peloton for awhile and it's spread further to most tech. The embodiment of that is the ARKK ETF and it broke the 2021 low today. The latest moves have been led by tech and today's drop in the Nasdaq was the largest since Feb 25.
For its part, the bond market was fairly sanguine. Two-year rates moved up 2 bps after the Fed minutes and 10s were up 1.5 bps. You could argue the move came earlier in the week when they rose more dramatically -- and some technical levels are certainly in play -- but this was more of a tech move with a fundamental trigger than a fundamental move.
The FX market was in the middle, with the loonie struggling despite oil and gas holding up. AUD/USD tracked around 0.7260 for most of the session before falling 40 pips after the Fed minutes.
One dynamic that needs to be highlighted is the euro. It struggles against the dollar in risk positive environments but it also struggled today in a negative environment that was driven by US rate hike fears. It's chopped along the bottom for two months and it's showing much life.
On the flipside is the pound, which hit a two-month high today before giving most of it back. Boris isn't interested in any more lockdowns and that's going to result in a resilient economy once the pain of this wave subsides.