FOMC minutes attract attention
The two-day FOMC meeting begins today and concludes tomorrow with a decision as the global economy is feeling the pain of omicron variant. The Federal Reserve is widely expected to maintain its hawkish stance as it prepares the market for liftoff at its next meeting.
Anyone hoping for some form of Fed Put this week will likely be disappointed. The Federal Reserve’s top aim right now is to keep inflation under control. Because the economy is on the verge of reaching full employment and inflation remains persistently high, the Federal Reserve cannot help the equities market at the same time.
The US dollar index moved higher today, posting a two-week high around 96.20, as investors sought safe-haven currencies amid Russia-West tensions over Ukraine and awaited the result of the Fed meeting. Dollar/yen is hovering above 114.00, while euro/dollar is tumbling below 1.1300. US stock futures suggest a negative open after a green day on Monday. Sterling held at a three-week low of 1.3435 against the dollar as investors remained wary of risk assets in the face of rising tensions in Ukraine and expectations of a Federal Reserve rate hike.
Russian-Ukrainian relations
The Russian-Ukrainian border remains tense. 8,500 American troops have been placed on high alert for possible deployment to reinforce NATO forces in Eastern Europe. “It is pretty evident that the Russians have no intention right now of de-escalating,” U.S. officials said, but Russia said it has not heightened tensions. Biden enjoyed a conversation with European leaders, including French President Macron and German Chancellor Scholz, as diplomatic efforts continue. “Total unanimity with all the European leaders,” Biden noted. We get the distinct impression that this tale is far from over and that the current impasse will last for some time.
BoC rate hike on Wednesday
The Bank of Canada will host its first policy meeting of 2022 on Wednesday. In the previous week, bets on a rate hike have increased in intensity, and a 25-basis-point increase is currently nearly 85% priced in. Expectations of an early action were bolstered by recent CPI data showing annual inflation hit a 30-year high of 4.8% in December. Dollar/loonie is moving slightly up today near 1.2650.
Australia’s inflation jumped to 7-year high annually
Australia’s inflation rose to its highest annual rate since 2014 in the December quarter, driven by gasoline and housing expenses, stoking market speculation of an early rate hike. The CPI grew 1.3% in the fourth quarter and 3.5% for the year. Aussie/dollar remains above 0.7100 but with a negative bias.
