US stocks were trying to pare losses, but the Fed’s minutes had other plans. The Fed signaled the beginnings of talking about tapering purchases delivered another blow to risk appetite. Wall Street is a sea of red today as inflation worries persist and after the panic-selling of cryptocurrencies rattled many retail investors.
Minutes
The FOMC minutes showed the Fed is finally a lot closer to thinking about raising interest rates. The key quote from the minutes was that policymakers think it might be appropriate at some point in upcoming meetings to begin discussing a plan for adjusting the pace of asset purchases. First they taper, then everyone starts the countdown until the rise with interest rates.
Treasury yields climbed higher as the Fed’s minutes show hawks are starting to emerge as the outlook for asset purchases is no longer unanimous. Now it is various participants that think it will be some time before further progress is made with their goals.
The Fed is optimistic about the US economic recovery, but it will be quite some time before enough substantial progress is reached for them to go full-fledged tightening mode.
The Fed’s Minutes voice concerns that bottlenecks could pressure prices into 2022, which clearly require further clarification on how long is transitory. The market already knows that the next couple of inflation readings will be very hot, but if we continue to see hotter-than-expected CPI and PPI readings, the bond market selloff could return. The minutes noted that after the transitory effects of these factors fade, participants generally expected measured inflation to ease. The focus will be on supply chain bottlenecks over the next few months, with markets anxiously awaiting to see if the Fed pivots on the belief that pricing pressures will instead remain elevated throughout the rest of the year and the majority of next.
Oil
Crude prices got pummeled on both a broad risk aversion theme that sank many super-commodity cycle trades and on high optimism that the Iranian nuclear deal is close to getting done. Iranian crude supplies could start to steadily increase in just a couple of months.
Gold
Gold traders may have thought they had a one-way ticket to $1,900, but the Fed’s Minutes triggered a big reversal as preview of taper talks sent Treasury yields soaring higher. Despite the carnage over several asset classes, gold investors got to be happy with how it performed today. Some institutional traders got burned on Bitcoin and will likely remain loyal to gold.
Gold’s worst enemy is rising Treasury yields and if the inflation theme continues, bullion could consolidate here.
Bitcoin
Some Bitcoin traders are still digesting the morning’s plunge. After panic-selling saw prices collapse towards the $30,000 level, Bitcoin got several votes/tweets of confidence that gave investors confidence to jump back in. A broad cryptocurrency crash looks like a flash crash for many coins, but by no means is Bitcoin in the clear. Bitcoin will need to see much more of its energy consumption go to renewable sources before corporate America can resume endorsements. Bitcoin will remain a wild trade here.