US crude surges above 50-DMA as Fed minutes reveal hawkish stance

US crude jumps above 50-DMA

Minutes from the Federal Reserve's (Fed) latest policy meeting were more hawkish than expected. The minutes revealed that some officials preferred another 25bp hike right away instead of a pause. Almost all of them said that additional hiking would likely be appropriate, and the forecasts showed that they also expect mild recession.

The minutes came to confirm how serious the Fed is in further tightening monetary conditions, and boosted the Fed hike expectations. The US 2-year yield came very close to 5%, the stocks fell, but very slightly. The S&P500 closed the session just 0.20% lower, while Nasdaq 100 gave back only 0.03%. The US dollar gained however, the EURUSD slipped below its 50-DMA, as the Eurozone services PMI fell short of expectations. The June number still hinted at expansion, but the composite PMI slipped into the contraction zone for the first time since January, hinting that activity in Eurozone is slowing because of tightening monetary conditions in the Eurozone as well. On the inflation front, the producer prices fell 1.5% y-o-y in May, the first ever deflation since February 2021. The expectation for the 12-month inflation in EZ fell to 3.9% in May. It's still twice the ECB's 2% policy target, but it's coming down slowly. And the trajectory is certainly more important than the number itself.

Moving forward, further opinion divergence will likely appear along with softening data, but the ECB will continue hiking the rates because officials will be too afraid to stop hiking too early. And as the economic picture worsens, the credit conditions become tighter, the cheap loans dry up and the post-pandemic positivity on peripheral countries fade, we will likely see the yield spread between the core and periphery widen. And the latter could have a negative impact on the single currency's positive trajectory against the US dollar.

Due today, the ADP report is expected to reveal that the US economy added around 228K new private jobs in June, while the JOLTS is expected to have slipped below 10 mio job openings in May.

By Ipek Ozkardeskaya, Senior Analyst | Swissquote Bank

Ipek Ozkardeskaya

Ipek Ozkardeskaya provides market analysis on FX, leading market indices, individual stocks, oil, commodities, bonds and interest rates.

She has begun her financial career in 2010 in the structured products desk of the Swiss Banque Cantonale Vaudoise. She worked in HSBC Private Bank in Geneva in relation to high and ultra-high net worth clients. In 2012, she started as FX Strategist in Swissquote Bank. She worked as Senior Market Analyst in London Capital Group in London and in Shanghai. She returned to Swissquote Bank as Senior Analyst in 2020.

She is passionate about the interaction between the economy and financial markets. She has been observing and analyzing a wide variety of relationships between the economic fundamentals and market behaviour over the past decade. She has been privileged to live and to work in the world's most exciting financial hubs including Geneva, London and Shanghai.

She has a Bachelor's Degree in Economics and a Master's Degree in Financial Engineering and Risk Management from the University of Lausanne (HEC Lausanne), Switzerland.