FxPro Financial Services Ltd | Nov 03, 2022 09:08AM ET
In recent months the Fed has repeatedly taken a more hawkish stance than the markets expect. However, the markets' preparation for yesterday's meeting and the signal we read in the official commentary were too strikingly different from the markets' interpretation of the press conference.
As a result, the S&P 500 jumped 1.4% in the half-hour between the decision's release and the press conference. But that jump only amplified the decline. From the peak to date, the Nasdaq 100 has lost 5%, the S&P 500 has lost over 4%, and the Dollar Index has added 2.5%.
Also striking is the phrase that, finally, rates will come to a higher level than previously expected by the committee. In our opinion, there should not be a significant rate hike since the market has priced at a peak rate of 5% compared to 4.5% at the last meeting.
Furthermore, comments that a smaller move has already been discussed at the recent meeting have gone underappreciated.
Outside the stock and currency market, there was a much calmer movement. The VIX rose modestly, remaining in a downtrend for more than three weeks. Cryptocurrencies have generally ignored events, and the rate futures market is marking a 48% chance of a fifth rate hike of 75 points in December compared to 50% at the start of the week.
However, it cannot be ruled out that someone from the Fed will start to point out that the market has not quite got the chairman's words right in the coming days.
The FxPro Analyst Team
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