Unemployment claims, Fed’s Meeting Minutes in the spotlight - Market Overview

Unemployment claims, Fed’s Meeting Minutes in the spotlight -  Market Overview

Thursday's weekly initial jobless claim figures showed U.S. unemployment unexpectedly spiked last week.

The latest Fed’s Meeting Minutes also revealed that officials remain determined to maintain the current expansionary monetary policy for as long as necessary until full employment is achieved.

Fed Chairman Powell insisted on his commitment not to change current monetary policy, a statement confirmed by Fed member Bullard. The latter offered assurances that the Fed will not modify its current monetary stimulus policies until there is an absolute certainty that the pandemic crisis is resolved.

These statements contrast with the economists’ approach, including the International Monetary Fund, which see a rapid recovery in the economy due to the rapid administration of the vaccines, and the fiscal stimulus policies.

The result is an extreme steepening of the interest rate curve, leading to new increases in interest rates for long-term treasury bonds. For example, the yields for Tnote10 rose to 1.66%.

Therefore, there is a discrepancy between the Federal Reserve's approach and the market’s expectations. In other words, the Fed seems to be acting behind the curve, a fact that, if confirmed, could have adverse effects on the stock markets, with the Dollar reversing its previous downward trend. This potential strengthening could come from the increase in long-term interest rates and a return to the Dollar's safe-haven status due to the worse performance of the stock markets.

Such a movement is seen today in both stock market and currency market.

The USD/JPY pair reverses its previous downward corrective move from the highs that reached the 110.90 level and is approaching the resistance zone around 109.90, above which the corrective move would end and point to further gains toward previous high levels.

Stocks corrected very slightly at the start of the European session, with USA500 futures retreating from the 4100 all-time high, but still a long way from the 3960 support levels whose breaching would encourage deeper corrections expectations.

Sources: Bloomberg,reuters.com.

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