U.S stocks closed higher on Wednesday as investors digested fresh clues on the Fed's approach to rate policy and soaring inflation from the latest FOMC minutes.
Minutes of the June policy meeting were certainly hawkish as the Fed's war against inflation raged on despite the collateral damage to the economy. One thing that stood out in the minutes was the possibility of “even more restrictive” monetary policy if price pressures persist. Indeed, with inflation at dizzying heights, policymakers judged that an increase of 50 to 75 basis points would be appropriate at the July policy meeting. Markets are currently pricing in an 83% probability that the Fed will hike rates by 75 basis points this month, followed by a 50 basis point rise in September. Another key takeaway from the minutes were concerns about rate increases having a “larger-than-anticipated” impact on economic growth. This could see increased sensitivity to how markets react to US economic data and its impact on rate hike expectations.
On the data front, the ISM Non-Manufacturing PMI on Wednesday revealed that growth in the US services sector cooled in June to a more than two-year low. All eyes will be on the US ADP employment change report today which could help investors set expectations on what to expect from the NFP on Friday.
Speaking of the US jobs report, markets forecast the US economy to have added 268,000 jobs in June, while the unemployment rate is seen holding at 3.6%. Should the headline NFP meet or exceed market forecasts with the unemployment rate holding steady or falling, this could soothe US recession fears. Alternatively, a lower-than-expected headline NFP figure coupled with a higher-than-3.6% unemployment rate could fuel fears around the US economy bound for a recession down the road.
Talking technicals, the S&P 500 remains in a bearish trend on the weekly and daily timeframe. There have been consistently lower lows and lower highs while prices are trading below the 50, 100, and 200 Simple Moving Average. A strong weekly close below 3637 could encourage a decline towards 3500 where the 200-week Simple Moving Average resides, and 3230.
Despite the rebound this week, prices still remain under pressure on the daily charts. Bears remain in control below the 3945 lower high. A daily breakdown below 3810 could trigger a selloff back towards 3700 and 3637.