Hawkish Fed minutes, ECB up next

European markets are pointing to a mixed start on Thursday, following on from weakness on Wall Street. The tech sector is likely to be the hardest hit.

•         Fed minutes were as hawkish as expected, keeping the Nasdaq under pressure & boosting the USD
•         ECB minutes are due to be released as inflation sits at a record high
•         Oil prices rise off a three-week low

Wall Street finished firmly lower for a second straight session, with the Nasdaq once again underperforming its peers as investors digested the minutes of the March Fed meeting.

The minutes showed that Fed officials were in favour of stepping up the pace of monetary policy tightening next month. Policymakers agreed that one or more 50 basis point rate hikes may be warranted and that the central bank was in a good position to begin the process of reducing the size of its balance sheet, which has ballooned to $9 trillion. The Fed plans to runoff $95 billion a month, which was within the range that the market was expecting.

The minutes were as hawkish as the market was expecting, but weren’t really anything new. Over the past few weeks, Fed speakers have been expressing the need for the Fed to act aggressively to tame inflation, which is four times above the Fed’s 2% target.

The Nasdaq, which is made up of high-growth tech stocks, which are particularly sensitive to rising interest rate expectations, has fallen over 4.5% in just two sessions. Meanwhile, the USD has jumped to a 23 month high.

ECB minutes

Looking ahead, it is now the turn of the ECB to release the minutes from its latest meeting, which could highlight the vast difference in position of the two central banks. The ECB is still tapering its bond purchases with the aim of a Q3 finish, slightly ahead of initial forecasts, which has promoted expectations that the ECB could start to raise rates in the August to October period.

Inflation in the block is at a record high of 7.5% in March, and energy prices, the biggest driver of inflation, are still elevated. The minutes could shed some light on how concerned ECB officials are over the current picture.

EUR

The euro is coming under the double threat of the economic impact from the Russian war and sanctions on Moscow but also from the uncertainty over the outcome of the French elections as Marine Le Pen closes the gap on Macron.

EUR/USD is rising today, taking 1.09 and snapping a 5-day losing streak. A more hawkish-sounding ECB could help the pair higher, although technically, the chart is still bearish, with sellers looking for a break below 1.0875 to target 1.08, the 2022 low.

Oil

Oil markets are still experiencing high levels of volatility. Oil dropped 5.5% yesterday after the International Energy Agency member countries agreed to release 60 million barrels on top of the 180 million barrels release announced by the US last week, to help ease tight supply. Today oil prices have picked up off the three-week low as supply concerns persist despite the larger than expected release. Prices remain below $100 per barrel, for now.