Market Recap: FOMC Meeting Fallout and Outlook for Tomorrow’s Data Releases

Today’s data releases and the FOMC meeting and press conference unfolded as follows:

The ISM report disappointed, with all sub-indexes showing slightly weaker performance than expected, although prices paid accelerated further to around 60, surpassing the anticipated 50ish level. Despite this, the market response was relatively flat.

Similarly, the ADP and JOLT reports were also slight letdowns, but market reactions remained muted as all eyes were on the FOMC meeting.

As anticipated, the FOMC decided to keep rates unchanged at 5.5%, which the markets interpreted as somewhat dovish. Stocks edged up slightly, the USD weakened marginally, and bonds saw a modest increase, although much of these moves were reversed during the subsequent press conference.

Chair Powell’s opening statement leaned more towards the dovish side, or rather, less hawkish than market expectations, leading to some volatility in the markets.

During the press conference, journalists attempted to coax Powell into hinting at the need for another rate hike, but he maintained a neutral stance, which was perceived as dovish compared to market expectations. This sentiment led to a rally in bonds, a decline in the USD across the board, and significant gains in stock markets, with the Nasdaq up by 2%.

However, towards the latter part of the press conference, the hawkish sentiment resurfaced slightly, resulting in a reversal of some market moves. Powell didn’t provide any further ammunition for the doves but also refrained from adopting an overly hawkish stance.

Currently, about an hour after the press conference began, markets are retracing around half of the initial moves.

Looking ahead, the outlook suggests a potential full retracement of the market moves triggered by the FOMC meeting. Following this retracement, there may be another bounce in equities and bonds as investors digest the implications of the Fed’s decision and Powell’s commentary.

However, this could be followed by another wave of hawkish sentiment as market participants shift their focus to tomorrow’s releases, particularly the weekly jobless claims and the unit labor cost index for Q1. These indicators will offer further insights into the health of the labor market and inflationary pressures, which could reignite volatility in the markets depending on the outcomes.