US Markets Dip Ahead of Fed – Dow Down 1%
US stock markets dropped in trading yesterday ahead of the key Fed rate decision as investors digested more comments from President Trump on tariffs. The President advised that the US would be putting fair numbers down on tariffs, raising concerns that there would be less discussion with trade partners. All three of the major indices fell: the Dow dropped 0.95%, the S&P lost 0.77%, and the Nasdaq closed 0.87% down. Treasury yields dipped, the 2-year down 5 basis points to 3.783%, and the 10-year dropped 4.9 basis points to 4.294%. The dollar also lost ground against most of the majors, the DXY down 0.15% to 99.24. Oil prices jumped off multi-year lows on news of greater demand from Europe and China, Brent up 2.94% to $62.00, and WTI rose 3.43% to $59.09 a barrel. Gold drove higher again to threaten all-time highs ahead of the Fed, rising 2.34% to $3,430.02 an ounce.
Fed in Focus Today
The Federal Reserve Bank will make its latest interest rate decision today, with the market fully expecting them to keep rates on hold despite demands from the Oval Office to cut them. The market is currently pricing in a 98% chance of rates remaining on hold, but we are likely to see volatility around the accompanying statement and the later press conference on when the next cut will come. It is likely that the next meeting in June will be ‘live,’ with a chance of a cut coming then, currently pricing in around a 30% chance, with odds increasing to 60% for a July move. The message that we receive from Jerome Powell will be key later today, with any more dovish indications likely to see further pressure on the dollar, which is still sitting close to sensitive technical levels on most of the majors. If he remains relatively hawkish and stays with a ‘wait and see,’ data-watching approach, then we could see the dollar rally back into recent ranges.
Busy Day Ahead for Traders
Financial markets traders are preparing for another busy day ahead, with geopolitical updates still a major influence on markets ahead of the biggest fundamental update of them all – the Federal Reserve rate call. We have already seen key data in New Zealand early in the Asian session, with the unemployment rate dropping from 5.3% to 5.1%, helping to push the Kiwi back towards annual highs. There will be a focus on UK markets early in the European session with Construction PMI data (exp. 46.0) due out, but really the big market moves should come in the US session. The Federal Reserve Bank is due to make its latest rate call later in the day, along with its statement and the usual later press conference. However, some traders feel that comments from the Oval Office, both with regard to the Fed and/or other trade comments, could have a bigger impact on the market.
