Mid-Week Market Minute 04.06.22

Global stocks retreated this week as markets grappled with a progressively more hawkish Federal Reserve along with a fresh round of European Union sanctions on Moscow. On Tuesday, Fed Governor Lael Brainard said the Federal Reserve may start reducing its balance sheet as soon as next month to help curb inflation. This cautionary tone was reiterated on Wednesday morning when Philadelphia Fed President Patrick Harker warned about inflation and the interest-rate hikes needed to control rising prices. Minutes of the Fed’s March meeting, due out this afternoon, will be closely scrutinized by investors looking for clarity around the parameters for the central bank’s balance-sheet tightening. This release will be watched closely by market participants, as Fed chair Jerome Powell said in his post-meeting news conference that the minutes will present the parameters of the Fed’s balance-sheet tightening, the unwinding of its $4.5 trillion in asset purchases during the pandemic. The 10-year Treasury yield has risen sharply on the heels of the prospect of both short-term rate hikes and balance-sheet reduction, with the 10-year yield trading around 2.63% mid-week, the highest level since March 2019. In geopolitical news, the European Union rolled out a fresh round of proposed sanctions on Russia following reports of alleged war crimes by Russian forces. The proposed sanctions include restrictions on Russian coal and chemicals, but do not prohibit oil and gas imports. On the data front, the Institute for Supply Management showed the Purchasing Managers’ Index (PMI) rising for the first time in four months. In addition, the report revealed the prices paid component climbed to the highest level on record.

Source: GSAM, Daily Upside, JPM, FactSet

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