US and European Futures are trading lower as traders are likely to remain on the side-lines ahead of the major economic event, the Fed Minutes, which is taking place later today. In addition to this, we also saw weakness creeping into the US economic data—the US ISM Manufacturing yesterday. This is something that no one wants to see because the Fed has changed its monetary policy path as it wants to increase the interest rates three times this year. The Fed needs to be careful with its policy approach as any mistake could negatively influence the US economy.
Hence, Jerome Powell, the Fed Chairman, needs to strike a balanced approach between being hawkish and dovish. This would help the Fed fulfil its duty and improve the US economic health as well.
Bitcoin, the crypto king, continues to struggle. Bulls are losing faith as the price is consistently failing to stage a bull rally, and BTC is failing to stay above the 50K price mark. Investors and traders hope that the Bitcoin rally could push the BTC price above the 100K price mark as institutions are now involved in this space, and we also have the Bitcoin ETF. However, in reality, the approval of the Bitcoin ETF didn’t help the Bitcoin price significantly. If the BTC price continues to trade below the 50K, we are likely to see the price moving towards the early 40s or even breaking the major psychological support of 40K as well. Watch the Bitcoin price in the coming days more closely.
The prospect of three rate hikes from the Fed is on traders’ mind, and they would seek more clarity from the Fed when the Fed minutes are released later today. Traders know that the Fed wants to control inflation, and they want to do this more aggressively. This particular aspect has turbo-charged the dollar index and US Treasuries. Both of them have experienced really significant moves so far this year. However, the upcoming event, the Fed Minutes, could take some wind out of the current rally in the dollar index and US Treasuries.
The Fed Minutes will be released later today, and traders will be monitoring every word of these minutes. Previously, the Fed has indicated that they will be increasing the interest rates three times this year. They have already increased their pace of tapering, which confirms that the Fed is done with the dovish monetary policy stance, and now they want to control inflation which is getting out of control.
One particular factor that traders will also be watching in these minutes will be how concerned the Fed is about Omicron, a Covid variant. So far, traders and investors have started to brush away any qualms related to Omicron as they have started to believe that the consequences of this Covid variant aren’t that dire. But they would like to hear an echo of this in the Fed minutes. The hospital data on Omicron shows things aren’t that serious, which is an encouraging sign.
Apart from Omicron, something which is also on the traders’ dashboard is the strength in the economic data. Yesterday, we saw a serious plunge in the US economic data. The US ISM manufacturing PMI data had a significant drop yesterday, which isn’t good. The reason is that if the US economic data begins to show weakness and we have the Fed continues to deliver a hawkish message, we are very likely to run into serious trouble. Traders will see that as a massive concern and are highly likely to lose their appetite for riskier assets.
So, overall, what traders would like to hear from the Fed is as follows. They would like to see that the Fed is monitoring the economic conditions closely, and if there is any threat to the US economic health, the Fed will show little to no hesitancy to reverse their current monetary policy. Secondly, they would like to see from the Minutes that the Fed is serious about inflation this time given that they have made a mistake previously thinking that inflation was only a transitory issue.