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Treasury yields soared & FOMC Minutes ahead


6 April 2022 Written by Andria Pichidi  HF Markets Analyst Andria Pichidi

USD & Treasury yields have been rising. Stock markets have been under pressure, hit by the surge in yields with the tech-heavy index (USA100) plunging -2.26% as selling picked up into the close. The market has priced in a lot of bearish elements, yields shot higher again on hawkish comments from Fed, RBA. Disappointing China PMI reports weighed on both bond and stock market sentiment.

European Open

The German manufacturing orders came in much weaker than expected, with orders falling -2.2% m/m in February.  The actual slump was a surprise that will add to concerns that the German manufacturing sector could be heading for recession as the spike in energy prices and supply chain disruptions hit Germany’s industrial core. Exports orders dropped -3.3% in February.

FOMC preview

The minutes should prove very interesting to the markets as they should provide details on the balance sheet run off. We’ll also read the various comments about the abrupt, hawkish pivot from the FOMC, although we already know that the threat of surging inflation and the likelihood that it would not prove as “transitory” as expected, along with the robust recovery and strength in the labor market, were the major factors that finally forced the Fed to shift into high gear by accelerating the pace of trimming accommodation and then eye aggressive rate hikes. The dot plot reflected the pivot, and Fedspeak since then has affirmed it.

Governor Brainard’s comments Tuesday, in fact, indicated the Fed would announce the start of balance sheet reduction as soon as May. She also supported her colleagues’ views on the need for a larger and speedier pace of balance sheet runoff. We will look for details on that in the minutes. We suspect at a minimum the Fed will double the pace of that from the last cycle with $60 bln in Treasuries and $30 bln in MBS, although the still hot housing market could see a higher cap on MBS.

Biggest FX Mover @ (07:30 GMT) USDCHF (+0.37%) At 6-day highs and close to R2 at 0.9331. Next resistance 0.9376. MAs aligned higher, MACD signal line & histogram higher & over 0 line, RSI 77 & rising, H1 ATR 0.00087, Daily ATR 0.00617.

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