The Federal Open Market Committee released the minutes from its December meeting earlier this week, to the confusion of many. The consensus remains that interest rate cuts will come later in the year but the path to enacting them appears to be quite contested. The notes revealed an “unusually elevated degree of uncertainty” with some members even floating the idea of further rate hikes to bring down inflation to the Fed’s target of 2%.
Adding fuel to the fire, employment data this week revealed a relatively strong jobs market. Jobless claims for December came in at 202k versus 216k expected, while private sector employment added 164k positions over the same month, far higher than market expectations of 115k. A reminder that we also have Non-Farm Payrolls this Friday which should provide additional clarity to the situation.
A somewhat murky picture is being painted. A strong jobs market isn’t ideal as far as controlling inflation is concerned, but the Fed cannot afford to stifle economic growth for too long or it will risk triggering the so called “hard landing” it has fought so hard to avoid.
The uncertainty carried over into stocks, which have had a shaky start to the year to say the least. After an abysmal first session of the year, the Nasdaq Composite continued its lacklustre performance falling 1.18% and 0.56% on Wednesday and Thursday respectively. The drop was in no small part due to Apple drawing two stock downgrades this week, analysts citing growth rates and upgrade demand as causes for concern. The S&P 500 put in 0.80% and 0.34% losses over the same time frame; the impact on the Dow Jones slightly more cushioned with a 0.76% fall on Wednesday before closing flat the next day.
Markets in Japan reopened on Thursday following a long year-end break. The Nikkei 225 fell sharply during intraday trading before rebounding convincingly to close with a modest 0.53% loss. The moves follow in the wake of a series of earthquakes in central Japan and a fatal aircraft collision at Haneda airport in Tokyo. The recent strength in the Dollar has nudged USDJPY to near 145 Yen, up from 141 just a few days ago.
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