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Fed Meeting Minutes Spark Market Reaction and Heighten Rate Hike Expectations

Market Update - Daniel Ang The Accidental Trader Traders Academy International 9

In yesterday’s trading session, US equity markets experienced a decline as investors digested the minutes from the Federal Reserve’s June policy meeting. After a holiday break on Tuesday for Independence Day, market participants weighed the implications of the Fed’s discussions on interest rates and the economic outlook. This market update provides a comprehensive overview of the key developments and their impact on various asset classes.

Delving into the Fed Meeting:
During the June meeting, the majority of Federal Open Market Committee (FOMC) members expressed a preference for maintaining the Fed’s benchmark lending rate at its current level. However, some members supported raising the rate by 25 basis points. The committee left the interest rate unchanged but revised its median rate outlook from 2023 through 2025, along with other modifications to its Summary of Economic Projections. These minutes revealed “concerns” over the decision to pause rate hikes the previous month.

Market Performance:
Against this backdrop, the Dow Jones Industrial Average decreased by 0.4% to 34,288.6, while the S&P 500 and Nasdaq Composite declined by 0.2% each, closing at 4,446.8 and 13,791.7, respectively. The market sentiment was influenced by the uncertainties surrounding future rate hikes and the implications for economic growth.

Interest Rate Expectations:
According to the CME FedWatch Tool, market pricing currently indicates an approximately 89% probability of a 25 basis point interest rate increase during the upcoming FOMC meeting on July 26. The remaining 11% suggests the rate will remain unchanged. These expectations continue to shape investor sentiment and influence asset pricing.

Economic Data:
In May, new orders for US manufactured goods experienced a modest increase of 0.3%, falling short of expectations despite a surge in the non-defense aircraft category. The Census Bureau reported factory orders of $577.97 billion, maintaining the same growth pace as April. The consensus among analysts had projected a gain of 0.9%. Additionally, the forthcoming Labor Department report is anticipated to show job additions of 225,000 in June, with a slight decline in the unemployment rate to 3.6%.

Currency and Commodities:
The US dollar strengthened against major currencies following the release of the Fed meeting minutes, reinforcing expectations of an upcoming interest rate hike. The EUR/USD pair fell 0.21% to 1.0854, while USD/JPY rose close to 144.48, remaining below the threshold that triggered intervention by Japanese authorities last year. Traders are attentive to the potential risks of intervention, while also considering the possibility of further downside for the yen over the medium term.

The Australian dollar (AUD) experienced a decline in line with the Chinese Yuan after data revealed a slowdown in China’s services activity growth. This indicates a faltering post-pandemic recovery in the world’s second-largest economy. AUD/USD fell by 0.5% to 0.6658, marking its fifth consecutive day of losses.

In the commodities market, West Texas Intermediate (WTI) crude oil surged by 3.2% to $72 per barrel, reflecting the impact of various geopolitical factors and market dynamics. Meanwhile, gold declined by 0.3% to $1,923.40 per ounce, while silver rose by 1.1% to $23.36 per ounce.

Cryptocurrencies:
Following the release of the Fed meeting minutes, most major digital assets experienced downward pressure. Bitcoin (BTC/USD) traded at $30,522, down 0.6% in the past 24 hours, while Ethereum (ETH/USD) recorded a 1.3% decline at $1,909.

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