By Peter Nurse
Investing.com -- The Federal Reserve shakes up the markets with a hawkish tone, with stocks and crude heading lower. Internet outages cause more disruption while U.S. unemployment data will be closely watched. Here's what's moving markets on Thursday, June 17th.
1. Fed takes a hawkish tone
The Fed disrupted the summer torpor that the markets had settled into by signaling on Wednesday that two rate hikes could be in the cards by the end of 2023, a year earlier than expected.
The central bank concluded its two-day policy meeting by keeping its interest rates and monthly bond purchases unchanged, as widely expected, but new projections saw 11 of 18 central bank officials point to two rate hikes of 25 basis points in 2023. This represented an abrupt change of thinking from the previous meeting when none of these officials were looking for hikes during that year.
At 6:30 AM ET (1030 GMT), the dollar rose to levels not seen for around two months, with the dollar index up 0.5% on the day to 91.642, while the benchmark 10 year U.S. Treasury yielded 1.56%, after hitting a high of 1.59% not seen since early March, from as low as 1.482% on Wednesday.
The Fed cited an improved economic outlook for this changed stance, with overall economic growth expected to hit 7% this year, adding that the 15-month Covid-19 pandemic was no longer a major restraint on the U.S. economy.
With U.S. inflation rising faster than expected and the economy recovering, the market had been expecting the central bank officials to begin discussing whether a timetable was needed for reining in its massive bond-buying program.
However, this hawkish stance “suggests that the QE tapering discussion could start a little earlier than thought and conclude more quickly,” said analysts at ING, in a note. “This means that all the focus will be on the Jackson Hole conference in late August as a possible date to formally acknowledge the need to taper.”
2. Stocks lower after Fed update
U.S. stocks are seen opening lower Thursday, after the Fed's sudden shift took markets by surprise.
By 6:25 AM ET, Dow Jones futures were down 115 points, or 0.3%, S&P 500 futures were 0.4% lower and Nasdaq 100 futures dropped 0.5%.
Thursday’s losses would follow on from weakness during the previous session, when the broad-based S&P 500 closed 0.5% lower, the blue-chip Dow Jones Industrial Average dropped 0.8% and the tech-heavy Nasdaq Composite fell 0.2%.
The main Wall Street indices have bounced back sharply from the hefty losses seen at the start of the pandemic, with all three more than 30% higher over the last year and near record levels, helped in no small part by the fiscal and monetary largesse of the U.S. authorities.
In corporate news, Britain and the United States agreed Thursday a deal to resolve a trade dispute concerning Airbus (PA:AIR) and Boeing (NYSE:BA), an agreement that comes shortly after the European Union and the U.S. buried the hatchet after a near 17-year conflict over aircraft subsidies to the two manufacturers.
In terms of earnings, investors will digest numbers from computer software company Adobe (NASDAQ:ADBE) and food retailer Kroger (NYSE:KR), among others.
3. U.S. unemployment data
One of the factors that contributed towards the Fed turning more hawkish was the expectation of strong job creation over the summer months.
The market will get its first view of labor market data following the Fed gathering later Thursday, with the weekly jobless claims numbers, at 8:30 AM ET (1230 GMT).
The number of individuals who filed for unemployment insurance for the first time in the U.S. is seen falling to 359,000 for the week ending June 5, the fewest since the pandemic began and beating 376,000 for the week before.
Continuing jobless claims, a measure of people receiving unemployment benefits for a while, are expected to fall to 3.430 million in the week ending June 12, from 3.499 million a week before.
The widely-watched U.S. nonfarm payrolls increased by 559,000 in May, according to data from the Labor Department earlier this month, a touch below the 650,000 expected.
While this figure still indicated healthy growth, the market should maybe look for this data point ramping up over the next couple of months given the apparent confidence of the FOMC members.
4. Cybersecurity worries
Major internet outages are becoming commonplace these days.
Earlier Thursday, Australia's central bank, the postal service and several banks were affected by internet outages, disrupting customer services and financial transactions.
The Reserve Bank of Australia was forced to cancel its operation to buy long-dated government bonds because of the associated technical difficulties.
Additionally, the websites of major U.S. airlines, American Airlines (NASDAQ:AAL), Southwest Airlines (NYSE:LUV) and United Airlines (NASDAQ:UAL) experienced disruptions early on Thursday, according to outage monitoring website Downdetector.
It’s unclear whether these two events are connected. Last week’s outage by a number of major websites, including the U.K. government’s site and many major news agencies, was traced to an issue at global website hosting service Fastly (NYSE:FSLY).
One of the topics U.S. President Joe Biden discussed with his Russian counterpart Vladimir Putin at their meeting in Geneva Wednesday was cybersecurity.
This follows a series of recent ransomware attacks, linked to a group based in Russia, including an incident in May that shut down a pipeline that supplied fuel for much of the U.S. East Coast.
5. Crude prices slip on stronger dollar
Crude oil prices weakened Thursday, falling from multi-year highs as the stronger dollar in the wake of the Fed meeting weighed, offsetting signs of a tightening market.
By 6:25 AM ET, U.S. crude was down 0.1% at $71.10 a barrel, after reaching its highest level since October 2018 the previous session, while Brent was down 0.1% at $73.24, falling from its highest level since April 2019.
Crude oil markets have soared this year, posting gains of well over 40% with demand recovering from the Covid-19 pandemic hit as successful vaccination programs have allowed the major global economies to reopen.
Helping the market has been the general weakness of the U.S. dollar as the Fed pointed to ultra easy monetary policies for a considerable length of time. However, this changed on Wednesday, and the greenback registered its largest single day gain in 15 months.
A stronger buck makes oil priced in dollars more expensive in other currencies, potentially weighing on demand.
Adding to the more cautious tone were comments from the Saudi Energy Minister Prince Abdulaziz bin Salman at a conference Wednesday, who stated that the oil market was “not out of the woods yet”, and the steady approach by the group of top producers in adding supply was paying off.
Still, losses have been small Thursday, certainly when compared to the recent gains, as the gains in demand have been readily apparent.
U.S. crude oil stockpiles dropped sharply last week, falling by 7.355 million barrels for the week to Jun. 11, according to the Energy Information Administration, as refineries boosted operations to their highest since January 2020.
Additionally, daily refining rates in China, the world’s largest importer of crude, rose to a record high of 4.4% in May from the same month in 2020.