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US stocks tumble on Fed minutes, oil under $100, bond yields spike

The Fed

Asia markets are set to open lower as broader markets fell for the second straight trading day overnight. The US Federal Reserve meeting minutes recorded plans for a sooner-than-expected balance sheet reduction of US$95 billion a month, along with a possible half-percentage rate hike in May. 

SPI futures are down 0.28% indicating a drop in the S&P/ASX 200 at the open. Tech stocks are likely to be under pressure following the US session, and the energy sector faces challenges amid falling oil prices. Mining stocks, however, are expected to remain strong due to expanding sanctions on Russa.

The NZX 50 has dropped as much as 0.5% this morning. The real estate stocks, such as Kiwi Property Group Ltd and Goodman Property Trust may benefit from the overnight US session.

US and EU stocks

The Dow Jones Industrial Average fell 0.42%, the S&P 500 slid 0.97%, and Nasdaq declined 2.22%.

The growth sectors, including consumer discretionary, technology, and communication services, led broader markets losses, with all the mega-caps, including Apple, Microsoft, Alphabet, Meta Platforms, and Amazon, down between 2-4%. Tesla shares fell 4%, and Nvidia declined 6%.

Bank stocks were hit by flattening bond yield curves as some of the long-dated US Treasury yields are greater than those in the short-dated bonds, which tends to hurt lenders' profit margins. Also, the long-dated bond yields spiked on the Fed’s balance sheet reduction plan, which could have a bigger impact on the housing market, in turn pressuring bank lending activities. Citigroup shares were down 2% and Goldman Sachs fell 2.4%. JPMorgan Chase slid by 1.4%.

The defensive sectors, including consumer staples, healthcare, real estate, and utilities, all finished higher as investment funds sought assets that could hold up in a likely incoming "stagflation" economic cycle.

The European major indices were all down because of the Fed’s hawkish guidance and new sanctions on Russia. The French benchmark index, CAC 40, slumped 2.21% with the far-right candidate, Marine Le Pen, gaining support to close the consensus gap with President Emmanuel Macron. The Stoxx 50 fell 2.38%, DAX slid 1.89%, and the FTSE 100 was down 0.34%.

Treasuries

The US bond yields spiked on the Fed’s aggressive monetary tightening plan. The 10-year US Treasury yield surged to 2.60%, a fresh 3-year high. The 2-year Treasury yield, however, fell to 2.48%, which reversed an inversion pattern in the yields curve. This was because the Fed’s balance sheet reduction affects more on the long-dated bond yields by letting the securities roll-off. However, the 5-year and 30-year bond yields remain inverted, at 2.68% and 2.62% respectively.

The Australian 5-year bond yield fell to 2.77% on Wednesday but is still at the highest since November 2014. The RBA this week kept the cash rate unchanged but gave forward guidance for potential earlier moves to raise the cash rate

Commodities

Oil prices tumbled on the joint reserve release plan from both US and the IEA members, falling below the $100-mark. The IEA countries plan for a 120-million barrels-release from their reserves, together with the US plan of 100 million per day. The joint efforts sent the oil prices lower, but most likely, only in the short term.

WTI futures fell 5%, to US$96.87 per barrel, and Brent futures slipped 4.52%, to US$101.82 per barrel.

The NYMEX gold futures also dipped to US$1,925. 90 per ounce, but still hold strongly above the key support of US$1,914.

Currencies

The commodity currencies all weakened against the USD due to spiking bond yields in the US bond markets. Falling oil prices also sent the Canadian dollar lower. Both CAD and NZD fell 0.5% against the US dollar, and the Australian dollar slid 0.9% against the greenback.

Both Eurodollar and JPY paused losses against the USD. The EUR/USD finished at 1.0895, and USD/JPY closed at 123. 80.

Cryptocurrencies

Cryptocurrencies fell together with other risk asset classes. All of the major digital tokens slid, with Bitcoin down 4.15%, to just under $US44,000, and Ethereum dropping 5.8%, to US$3,235. Both Solana and Cardano slumped more than 7%.

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