DIA +.05%, SPY -.09%, QQQQ +.51%
10 Year Treasury, +1/4 yielding 4.16%
Today’s big news was the Fed’s ¼ point increase of the discount rate, which they announced at 2:15 ET. However, they left a sentence out of the statement that said, “Longer-term inflation expectations remain well- contained”. The Fed caused some confusion when they announced the addition of the sentence after they issued their policy statement. As a result, the market zig-zagged after their policy release. The Fed maintained their position they would use a measured approach to interest rates, indicating further hikes are possible for the rest of the year. Market internals indicate confusion among traders. The advance decline ratio was even on the NYSE, and slightly negative on the NASDAQ with decliners leading advancers 15-14. However, 52% of NYSE volume was negative compared with 37% on the NASDAQ.
The 10-year Treasury rose ¼ to yield 4.16%. After the Fed made its original announcement, he market originally sold-off to a yield of 4.21%. However, the addition of the sentence “”Longer-term inflation expectations remain well- contained” eased bond-trader’s inflation concerns and led to a market rally. Several commentators mentioned even with the new statement, the Fed’s possible actions are still wide-open, although others noted the new language lowers the possibility of large rate increases.
Oil fell 3%, closing below $50/bbl at $49.50. The oil market is predicting the Department of Energy will report tomorrow that oil inventories in the US increased again. In addition, the Saudis announced they are pumping near capacity and other OPEC members are trying to ramp up production to allow the US to purchase oil ahead of the summer driving months and winter heating oil months.
The dollar was virtually unchanged versus both the Yen and the Euro. The Fed’s sentence omission left currency traders perplexed. In the original statement, traders noticed the language had not changed, but also keyed into the fact the Fed did not mention anything about inflation. This led traders to conclude the Fed could possibly raise rates aggressively. The dollar rallied versus both currencies on the original statement. However, the Fed’s correction led too a dollar sell-off, as traders assumed it meant the Fed would not aggressively raise rates. In short, traders will probably spend most of the evening trying to get a true read on what the Fed actually means.