Market Mood: A Day of Choppy Moves and Skeptical Calm
Yesterday’s markets were the epitome of “meh.” Trading shook‑up under the shadow of an upcoming FOMC announcement, but a tension‑filled but largely flat commentary on the state of Ukraine kept investors from breaking out into a full‑on panic.
Why the Market Stayed Calm
- Pre‑Fed drift: Even with the Fed’s impending tightening, everyone seemed to “play it safe”—the market’s movement “path of least resistance” cut down on equities and the dollar but still leapt up into safe assets (Treasuries, gold).
- Run‑in with Trump‑Putin call: The 90‑minute chat about a Ukraine ceasefire unearthed a brief ceasefire clause on energy infrastructure for 30 days—just another note in the paper, not a headline.
- Insurance words from Treasury Secretary Bessent: A shift from highlighting “brittle” to “healthy” economics seems a little optimistic, especially when the data has been on a declining trend. Whether this optimism will spread to the rest of the administration remains to be seen.
Germany’s Defiance: A Massive Defence and Infrastructure Bill
Back in Berlin, the Bundestag gave the green light to a whopping €500 bn of defence spending, erasing the tender’s previous balanced‑budget strictness. Market reaction? Mildly negative in Bund yields but nothing earth‑shattering because investors were “already priced in” this move.
Impact on the Euro
- The euro rushed close to its year‑to‑date highs (EUR 1.0955), only to retreat slightly.
- It seems on course toward a possible 1.10 breakthrough—a big win for euro‑supporters.
US Dollar’s Roller‑Coaster
The dollar’s value sflaunted back and forth through the G10, briefly trading above the $1.30 mark for the first time since last November. While a “free lunch” note was scribbled in the margin, analysts see the currency’s rally offering a selling opportunity, especially as the U.S. policy still feels a bit chaotic.
What’s in the Gold Basket? The Treasures Game Plan
- The gold price hit a fresh all‑time high at $3,040 /oz, thanks to a haven demand surge.
- On the financial side, Treasury yields and bond markets remained shoulder‑to‑shoulder, staying in place with just modest gains.
Japanese Calm: No Policy Change, but Some Serious Wage‑Price Signal
The Bank of Japan held its rates steady at 0.50%, keeping economic tone down while watching for a sexy wage‑price “virtuous cycle.” There’s a faint “more tightening on the horizon” vibe, but for now, the policy’s staying calm.
FOMC “Happy Fed Day” Preview
The Fed’s policy meeting is scheduled for later in the day. Here’s what “the real underpinnings” can be expected to be:
Likely Unchanged Decisions
- Fed funds target range will stay at 4.25%‑4.50%.
- Quantitative tightening will continue at the current pace.
- Expect the narrative to echo previous statements, telling folks that there is no “hurry” for cuts as the economy is still in a “good place.”
New Numbers on the Paper
- Money‑market participants will need to update their projections, but the hard numbers are expected to stay stable around the 50‑bp cut certainty per year.
- Possible “long‑run” dot shift could inch a few basis points higher.
- Short‑term upside for the dollar is still on the table, with a 58‑bp discount seen in year‑end cuts in the OIS curve.
Outside the Fed
- Eurozone inflation data, a range of ECB speaker remarks, and New Zealand’s Q4 GDP forecast will arrive later but may be eclipsed by the Fed’s impact.
Stay tuned—with the Fed’s decision looming, the market’s future will likely reflect “no rush” but also a dive into the uncertainty‑roulette that the world’s most embroiled economies often dance to.
