The Federal Reserve (Fed) wrapped up its two-day meeting
There were no surprises as the Fed upgraded growth and inflation expectations.
- Monetary policy was left unchanged with the Fed funds target rate remaining at 0-0.25% and the asset purchase policy remaining at $120 billion a month in Treasury and MBS
- Fed officials upgraded their growth and inflation expectations for 2021 to 6.5% and 2.4% (from 4.2% and 1.8% in December 2020), respectively.
- Expectations for unemployment were reduced to 4.5%, down from 5.0%.
- The median projected path for the policy rate continued to show no change over the forecast horizon although seven Fed members (out of 18) now expect at least one rate hike in 2023, up from five members in December.
- While the bond market initially responded positively to the Fed’s comments, overnight selling left the 10-year Treasury close to 1.75%.
The Nasdaq Composite 100 slumps as Treasury yields climb following the Fed’s comments on growth and inflation
- The 10-year Treasury yield traded as high as 1.75%, the highest since January 2020, while the 30-year Treasury yield climbed to 2.5%, the highest since 2019.
- European stocks are mostly higher in midday trading with the United Kingdom (UK) lagging and Germany outperforming.
- Asian markets had mixed results overnight, with many slipping from a positive to end at their low points of the day.
Jobless claims spike to one month high
- Weekly claims for unemployment insurance unexpectedly rose last week to 770,000 according to the Department of Labor, above Bloomberg consensus forecasts of 700,000. Claims from the prior week were also adjusted higher by 13,000.
- Meanwhile, continuing claims, or the number of people filing for ongoing unemployment benefits, fell for the ninth straight week to 4.12 million, but above Bloomberg forecasts of 4.03 million.
- The continued volatility shows that despite falling COVID-19 cases, volatility in the labor market is likely to persist as it grapples with business closures.
Global leading indicators are broadly positive but gains have slowed
- The Organisation for Economic Co-operation and Development’s (OECD) leading economic indicators for February signaled growth in the global economy.
- Slower recent gains reflect ongoing COVID-19 challenges and a higher bar to clear.
- Leading indicators for Europe, where COVID-19 cases remain stubbornly high, are flat over the past six months.
- A successful vaccine rollout to date improves prospects for the UK where leading indicators have also stalled.
- The data suggests the United States and China remain best positioned for near-term economic growth.
- Japan’s economy continues to outpace Europe’s.
- We take a closer look at the OECD’s leading indicators in today’s LPL Research blog, available at 12pm ET.
10-year yields have decisively broken out of a three-week consolidation, hitting as high as 1.75% this morning. The move is pressuring the Nasdaq, which failed to move through resistance at 13,607 in recent days, and puts the focus on the March 5 lows at 12,397 as key support for the index.
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