US Stocks Push Higher as Fed Holds Rates – S&P Up 0.28%
US equity markets closed moderately higher yesterday as investors assessed the latest Federal Reserve interest rate decision alongside a mixed series of corporate earnings announcements. As widely anticipated, the Federal Reserve held interest rates at their current level, although the accompanying statement and subsequent press conference provided limited guidance regarding the outlook for monetary policy at the December meeting. The lack of a clear indication of the Fed’s next move left investors reassessing their expectations for the remainder of the year. The Dow gained 0.19% to close at 52,475, while the S&P rose 0.28% to finish at 7,743. The Nasdaq also recorded a modest increase, rising 0.27% to close at 26,549.
US Treasury yields were mixed after the Fed. The policy-sensitive 2-year Treasury yield declined 3.9 basis points to close at 4.697%, while the benchmark 10-year yield increased 2.1 basis points to finish at 5.018%, moving back above the psychologically important 5% level. The divergence between short- and longer-dated yields highlighted differing market expectations regarding near-term monetary policy and the longer-term economic outlook. The US dollar weakened against the major currencies, with the Dollar Index declining 0.21% to close at 102.15, as investors responded to the update.
Energy markets continued to strengthen as ongoing hostilities in the Middle East maintained concerns regarding potential disruptions to global oil supplies. WTI recorded a substantial increase of 2.88% to close at $102.78 per barrel, while Brent crude advanced 0.22% to finish at $114.13 per barrel. Although diplomatic efforts towards a potential resolution of the conflict remain ongoing, continued military activity, especially from Houthi forces against Saudi Arabia, has sustained a significant geopolitical risk premium in the market. Gold prices recorded a modest increase, gaining 0.23% to close at $4,067.04 per ounce, supported in part by the weaker US dollar and continued geopolitical uncertainty.
It’s Not All About the Fed for FX Markets
Central bank decisions were a significant driver of currency market activity throughout the day yesterday, with the Bank of Canada and Reserve Bank of New Zealand also announcing their latest monetary policy decisions, alongside the Fed.
The Bank of Canada delivered an anticipated 25-basis-point interest rate increase, broadly in line with market expectations, which resulted in a limited reaction in the loonie. However, the Reserve Bank of New Zealand surprised investors by maintaining its benchmark interest rate despite widespread expectations for a further increase.
The unexpected decision prompted a sharp depreciation in the New Zealand dollar as markets adjusted their expectations for the future path of domestic interest rates, with the move against its cross-Tasman neighbour particularly pronounced after Aussie inflation data came in stronger than expected.
Attention will now shift towards the European Central Bank’s forthcoming policy announcement, which represents another important event for global currency and fixed-income markets.
Another Busy Calendar Day Ahead for Traders
Looking ahead, financial markets face another significant trading session, with monetary policy developments and major US economic releases expected to dominate investor attention.
The European Central Bank is scheduled to announce its latest interest rate decision, with a hold well priced in, so a particular focus will likely fall on the accompanying policy statement and press conference for indications of the future direction of European interest rates.
The US economic calendar is also particularly important. Core PCE Price Index data (exp. +0.3% m/m), weekly unemployment claims (exp. 198k) and Advance GDP figures (exp. +3.2% q/q) are all out early in the New York session. These releases will provide further insight into inflationary pressures, labour market conditions and the overall strength of the US economy, potentially influencing expectations for the Federal Reserve’s December meeting.
With monetary policy uncertainty remaining elevated and geopolitical developments continuing to affect sentiment, volatility is expected to remain a prominent feature of trading across equity, currency, bond and commodity markets.
