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Fed Meeting, U.S. PPI, Crypto Pressure - What's Moving Markets

Economy Jun 14, 2022 21:08
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By Geoffrey Smith -- The Federal Reserve starts a two-day meeting with markets in disarray, scrambling to price in a 75-basis point hike in key interest rates. The dollar's advance against the yen and euro stops after a rare admission of concern from Japan's finance minister and more jawboning from an ECB hawk. U.S. PPI data for May could change that in the near term. Crypto remains under pressure in the wake of the Celsius Network collapse. OPEC releases its monthly oil market report. Oracle surprises to the upside with its quarterly earnings. Here's what you need to know in financial markets on Tuesday, June 14.

1. Markets in disarray as Fed meeting starts

The Federal Reserve kicks off a two-day policy meeting against an increasingly disorderly market backdrop.

Market consensus has rapidly switched to expect a 75 basis point increase in the Fed Funds target rate on Wednesday in the wake of another painful overshoot in consumer inflation in May. Producer price inflation data for the month are due at 8:30 AM ET (1230) and look likely to cement such expectations, with a consensus forecast for another hefty 0.8% increase in prices from April.

The benchmark 10-year Treasury yield rose by the most this year on Monday as investors scrambled to re-price rising interest rate risks. At 3.32%, it now trades roughly level with the 2-Year note, having briefly traded through that level on Monday. A sustained period of short-term rates trading above long-term ones has historically been a reasonably reliable predictor of recessions.

2. Crypto still under pressure after Celsius collapse

The cryptocurrency space remains under pressure after one of the biggest multi-function players in the space, Celsius Network, suspended withdrawals amid a liquidity crisis on Monday.

Bitcoin prices touched a new 18-month low of $20,859 in early trading in Europe, before recovering a little to trade at $22,307 by 6:05 AM ET. That’s still down 7.5% from late Monday in New York. Caution is still the order of the day, with market participants aware that MicroStrategy (NASDAQ:MSTR), a de facto leveraged Bitcoin fund, faces a margin call on a $205 million loan if the price falls below $21,000.

On the brighter side, the world’s largest crypto exchange by volume, Binance, was able to resume withdrawals after temporarily suspending them on Monday. 

3. Stocks set to open with dead-cat bounce

U.S. stock markets are set to open with a dead-cat bounce later, after a start to the week that reeked of capitulation.

By 6:10 AM ET, Dow futures were up 55 points, or 0.2%, while S&P 500 futures were up 0.3% and Nasdaq 100 futures were up 0.6%. The benchmark cash indices had lost between 2.8% and 4.7% on Monday.

The small-business optimism index compiled by the NFIB earlier edged down to 93.1 from 93.2, an 18-month low but a smaller drop than seen in most recent months.

Stocks likely to be in focus later include Oracle (NYSE:ORCL), whose quarterly update beat expectations late on Monday, and Apple (NASDAQ:AAPL), which is under fire from EU antitrust regulators again. Crypto proxies remain under the cosh, meanwhile: MicroStrategy was down 5.4% in premarket, Coinbase (NASDAQ:COIN) down 1.5%.

4. Dollar advance pauses after Japanese, ECB comments

The dollar paused its upward march against both the euro and the yen, after Japan’s Finance Minister gave a rare admission of concern about its weakness and the hawks at the European Central Bank revived the fight for a half-point rise in interest rates in July.

Dutch central bank Governor Klaas Knot told the French daily Le Monde in an interview that the ECB should raise by more than the 25bp hike outlined in its guidance last week.

At the time, the ECB had left the door open to more drastic action in September but committed to a “gradual” and “data-dependent” approach through the summer.

5. Oil edges higher; OPEC monthly report, API due

Crude prices moved higher ahead of the Organization of Petroleum Exporting Countries’ monthly report on the oil market at 7:45 AM ET. Its forecast for demand out of China will be of particular note, given the renewed flare-ups of COVID-19 in Beijing and Shanghai that threaten to trigger a new wave of mobility restrictions.

A Beijing government spokesman said earlier that the city needed to go “all out” to bring an outbreak tied to one particular bar under control.

By 6:25 AM ET, U.S. crude futures were up 0.6% at $121.62 a barrel, while Brent crude was up 0.7% at $123.06 a barrel.

Fed Meeting, U.S. PPI, Crypto Pressure - What's Moving Markets

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