Markets Underwater Following Fed Official Comments…..

U.S. equities were lower as the markets appeared to react to hawkish comments from Fed Governor Brainard that the central bank could soon begin its balance sheet reductions and “at a rapid pace.” The remarks came as expectations of tighter global monetary policies remain elevated ahead of tomorrow’s key release of the minutes from the Fed’s March meeting, and after Australia seemed to get a bit more hawkish in its statement after leaving its benchmark interest rate unchanged. Inflation pressures continue to be the main catalyst for the monetary policy sentiment, and today’s ISM Services Index, which accelerated less than forecasts, highlighted that material costs have created uncertainty for many businesses. Meanwhile, the continuing war in Ukraine remained in focus, as the U.S. and Europe are reportedly considering further sanctions on Russia. In other economic news, the trade deficit held steady at a wider shortfall than expected, and the final March S&P Global Services PMI Index was unexpectedly revised lower. The yield curve has also been a significant source of market attention after it has seen some inversions and fostered recession uncertainty. Treasuries fell and yields moved higher, and the U.S. dollar advanced, while gold and crude oil prices fell. In equity news, Exxon Mobil suggested the largest quarterly profit since 2008, Carnival Corporation said it saw a record week of bookings, and Twitter announced that Elon Musk has been added to its Board. Europe finished mixed amid the aforementioned market focal points, while markets in Asia were mostly higher with Chinese and Hong Kong markets closed for holidays.

The Dow Jones Industrial Average declined 281 points (0.8%) to 34,641, the S&P 500 Index lost 58 points (1.3%) to 4,525, and the Nasdaq Composite decreased 328 points (2.3%) to 14,204. In moderate volume, 4.7 billion shares of NYSE-listed stocks were traded, and 4.6 billion shares changed hands on the Nasdaq. WTI crude oil fell $1.32 to $101.96 per barrel. Elsewhere, the gold spot price traded $8.00 lower to $1,926.00 per ounce, and the Dollar Index was 0.5% higher at 99.52.

The equity markets have continued to show some resiliency in the face of the ongoing war between Russia and Ukraine, and expectations that the Fed is set to get aggressive with its monetary policy tightening campaign to try to tame elevated inflation pressures. The Treasury bond markets are being closely watched with portions of the curve inverting with such occasions having historically preceded recessions but with a wide range of the length of time before they occur.

The trade balance showed that the February deficit held steady but came in wider than expected, remaining at January’s downwardly-revised $89.2 billion, and compared to the Bloomberg consensus forecast of a decrease to $88.5 billion. Exports rose 1.8% month-over-month (m/m), and imports gained 1.3%.

The March Institute for Supply Management (ISM) Services Index showed expansion in the key services sector (a reading above 50) accelerated, albeit less than expected. The index increased to 58.3, from the 56.5 in February, and versus estimates of an increase to 58.5. Growth in new orders, business activity, and employment increased month-over-month (m/m), with employment crossing into expansion territory. Meanwhile, new export orders jumped, inventories rose, and prices paid ticked further above the 80 mark. The ISM said, “There was an uptick in business activity in March, but respondents have indicated that they continue to be impacted by capacity constraints, logistical challenges and inflation. Labor shortages have eased slightly, as COVID-19 cases have declined and public-health restrictions have been relaxed. Geopolitical concerns — particularly the Russia/Ukraine war, which has impacted material costs, most notably fuel and chemical prices — have created uncertainty for many businesses.”

The final March S&P Global Services PMI Index was unexpectedly revised lower to 58.0 from the preliminary 58.9 level, where it was forecasted to remain, but above February’s reading of 56.5. A reading above 50 denotes expansion.

Treasuries were lower with yields rising after the curve has flattened noticeably as of late amid increased expectations of a more aggressive Fed monetary policy tightening cycle as it tries to combat the surge in inflation.

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