Wednesday was a risk-off session in markets, with stocks resuming their downtrend following the publication of the May FOMC meeting minutes.
What to Know About FOMC Minutes: A greater degree of uncertainty about the future of interest rates is becoming increasingly evident among the Fed’s board, with some members signaling the need to continue hiking at upcoming meetings.
Overall, participants felt pleased with the meeting statement’s ambiguity on whether cuts or further hikes in interest rates will occur this year.
The minutes additionally indicated that some participants expressed concern that if the U.S. debt ceiling is not raised by June 1, financial disruptions and tightened financial conditions will ensue.
Market reactions: Stocks Deep In The Red, July Rate Hike Probabilities Now A Coin Flip
The S&P 500 index, which is closely tracked by the SPDR S&P 500 ETF Trust SPY, fell 0.8% on the day, and edged slightly down following the release of the minutes.
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The yield on the one-month Treasury bill, the most-sensitive security to the debt ceiling negotiations, resumed its rise following the publication of FOMC minutes.
Yields on Treasury bills maturing after the June 1 debt ceiling deadline soared 6 basis points to 5.78% at 2:53 p.m. EDT.
The U.S. Dollar index (DXY), which is monitored by the Invesco DB USD Index Bullish Fund ETF UUP, recovered significantly about an hour after the minutes were released. The DXY rose 0.4% on Wednesday, marking its third straight day of gains.
Traders increased their bets on the Federal Reserve raising interest rates at its July 26 meeting, according to CME Group Fedwatch. While the odds of a rate increase in June stayed relatively stable (72% hold and 28% raise), there is a rising view among market participants that the Fed may deliver a hike in July after pausing in June.
A rise in the fed funds target range to 5.25-5.5% is placed at a 43% probability by July, with a marginal 10% chance of a 50 basis point increase to 5.5-5.75% by July.
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Chart: CME Group Fedwatch Tool