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Wall Street Slumps as Federal Reserve Signals Prolonged Monetary Restraint

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

Wall Street faced a substantial downturn as traders digested a slew of economic data and absorbed the latest signals from the Federal Reserve. On Wednesday, the Federal Open Market Committee (FOMC) chose to keep its benchmark lending rate unchanged but unveiled an adjusted median rate outlook for both 2024 and 2025, sending shockwaves through the markets.

Equity Markets

The Nasdaq Composite led the decline, plummeting by 1.8% to 13,224 points. Likewise, the S&P 500 recorded a notable decline of 1.6%, closing at 4,330 points. The Dow Jones Industrial Average followed suit, losing 1.1% to end the day at 34,070.4 points.

Economic Data

The economic landscape in the United States showed mixed signals. Existing home sales in August took an unexpected dip, declining by 0.7% sequentially. The seasonally adjusted annual rate of 4.04 million units fell short of the consensus estimate of 4.10 million, highlighting a 0.7% gain. Meanwhile, manufacturing activity in the US Mid-Atlantic region slipped into negative territory in September, marked by contractions in both orders and shipments, as reported by the Philadelphia Fed.

However, the labor market displayed resilience as initial claims for unemployment insurance reached their lowest level since late January. The four-week average continued its three-week decline, according to government data.

Bond Yields

Bond yields experienced significant movements, with the US 10-year yield surging by 14.1 basis points to reach 4.49%. The two-year rate also saw an uptick of 2.4 basis points, settling at 5.14%.

Currency Markets

In the currency markets, the US dollar moderated slightly but remained close to a six-month high. This followed the Federal Reserve‘s indication that US monetary policy would maintain a restrictive stance for an extended period. The Dollar Index registered a 0.10% decrease, resting at 105.33, after touching a peak of 105.74, its highest since March.

USD/JPY exhibited a notable decline of 0.58%, currently standing at 147.46. This comes as USD/JPY maintains proximity to a 10-month high, prompting attention to the possibility of Japanese government intervention in foreign exchange markets to bolster the yen.

Japan has left no option off the table in addressing the excessive volatility in currency markets, according to government officials. This announcement includes a warning against the yen’s decline towards the psychologically significant 150-mark per dollar. Traders are bracing themselves for both the Bank of Japan’s policy announcement and Consumer Price Index (CPI) releases.

GBP/USD faced a setback, dropping to its lowest level since March after the Bank of England (BoE) unexpectedly held interest rates steady, a decision following a cooler-than-expected inflation report the previous day. GBP/USD recorded a 0.41% decline, closing at 1.22935. Thursday marked the first time since December 2021 that the BoE refrained from raising rates, ending a streak of 14 consecutive rate hikes.

Commodities and Digital Assets

In the commodities market, West Texas Intermediate (WTI) crude oil experienced a 0.1% decrease, settling at $89.63 per barrel. This marked the third consecutive session of decline as the dollar gained strength. The Federal Reserve’s warning of potential interest rate hikes, despite keeping rates unchanged at its recent meeting, weighed on oil prices. November Brent crude was last seen down by $0.08, reaching $93.45.

Precious metals saw losses, with gold slumping by 1.4% to $1,939.70 per ounce and silver dropping 0.7% to $23.67 per ounce. Gold prices dipped by approximately 0.6% in the past 24 hours as financial markets continued to digest the implications of the Federal Reserve’s interest rate decision.

In the digital asset space, Bitcoin (BTC/USD) experienced a 1.1% drop over the past 24 hours, trading at $26,600. Ethereum (ETH/USD) followed suit, trading 1.5% lower at $1,590 after reaching a low of $26,389.

Conclusion

Wall Street’s decline was fueled by a combination of factors, including a more hawkish stance from the Federal Reserve, mixed economic data, and uncertainties in currency markets. As markets continue to adjust to these developments, investors are likely to tread cautiously in the coming sessions.

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