The correction on Wall Street is increasingly gaining momentum. Yesterday, the main Wall Street indices fell. Nasdaq Composite ended the day with a result of -1.2%, while Dow Jones and SP500 fell by 0.8 %. The minutes from the December meeting of the FOMC confirmed that the Fed has likely finished tightening its policy and is prepared to cut interest rates this year. The EUR/USD rate rose slightly last night and continues to rise this morning, reaching 1.0940. Oil prices gained significantly due to events in the Red Sea.
Yesterday’s FOMC meeting minutes confirmed market expectations of a Fed policy shift. At the same time, investors learned that monetary conditions will remain restrictive for some time. The announcement was certainly not as dovish as Powell’s words. The minutes did not include anything else and therefore did not cause major market volatility. Despite its dovish message, the stock market ended the day lower. The dollar slightly weakened against the euro, but this move can also be considered cosmetic. The market is now focused on the ADP report (today) and NFP (tomorrow).
The market valuation still gives nearly a 70% chance of a Fed rate cut in March, but in my opinion, such a scenario is unlikely with the middle of the year a more realistic timeframe. The market sees a total reduction of 146 basis points in 2024, which equates to six cuts of 25 basis points each. This is twice as much as indicated by recent forecasts from an American institution.
Yesterday’s oil market also drew interest. The price of the commodity rose by over 3% and negated Tuesday’s reductions. Brent crude again approached $79 per barrel. The increases occurred after reports of disruption at Libya’s main oil field heightened concerns about supply due to tensions in the Red Sea. The Iran-backed Yemeni group reported on Wednesday that it had “targeted” a container ship sailing to Israel, a day after the U.S. Central Command (CENTCOM) stated that the Houthi had fired two anti-ship ballistic missiles in the southern Red Sea.
Brent oil valuations are approaching a technical barrier, which is the upper limit of the downtrend channel that has been in play since October 2023. The realization of the scenario suggested by the potential formation of an inverted head and shoulders remains a possibility. The pattern is not textbook, but it suggests that a medium-term bottom is being built on the chart.
By Lukasz Zembik, Oanda TMS Brokers.
