Stock Market Calms After Recent Volatility: Here's What Traders are Awaiting from the Fed

Following a period of heightened volatility that sent shockwaves through both stock and bond markets, a semblance of calm has returned. Notably, the S&P 500 Index saw a 0.3% uptick, with the Nasdaq 100 notching a 0.6% gain. The Cboe Volatility Index (VIX), which had recently hit its highest level since May, has now started to recede. With a potential government shutdown looming at month-end and an ongoing autoworkers' strike, there's growing speculation that Federal Reserve officials might adopt a more accommodative stance.

Minneapolis Fed President Neel Kashkari articulated, "If these downside scenarios hit the US economy, we might then have to do less with our monetary policy to bring inflation back down to 2% because the government shutdown or the auto strike may slow the economy for us."

Later today, Federal Reserve Chair Jerome Powell, alongside several other central bank officials, are slated to address the public. While some moderation in the central bank's messaging is anticipated, a complete reversal is viewed as unlikely, according to Krishna Guha of Evercore ISI.

The 10-year Treasury yields have somewhat retraced from their 16-year peak, a surge spurred by speculations that the Federal Reserve will maintain a restrictive monetary policy well into the next year, or possibly longer. The demand for the dollar remains robust, as indicated by its sixth consecutive day of gains, on track for its lengthiest winning streak in a year.

For the first time since June 2021, the Federal Reserve Bank of New York's measure of long-term debt compensation for bond investors has turned positive, suggesting a belief among traders in elevated policy rates.

On the commodities front, oil prices have resumed their ascent, reaching $92 a barrel. Meanwhile, US consumer confidence has taken a hit from escalating fuel costs and the widespread repercussions of aggressive interest rate hikes.

In this pivotal juncture for the economy and the bond market, Bob Michele, CIO for fixed income at JPMorgan Asset Management, observed, "The last 15 years were not normal, we got to a structural low and now we are going to revert to something that is more normal."

Key Events This Week:

• Eurozone economic confidence and consumer confidence (Thursday)

• US initial jobless claims and GDP (Thursday)

• Fed Chair Jerome Powell's town hall meeting with educators, speeches by Richmond Fed President Tom Barkin, and Chicago Fed President Austan Goolsbee (Thursday)

• Eurozone CPI (Friday)

• Japan's unemployment rate, industrial production, retail sales, Tokyo CPI (Friday)

• US consumer spending, wholesale inventories, University of Michigan consumer sentiment (Friday)

• Speech by ECB President Christine Lagarde (Friday)

• Speech by New York Fed President John Williams (Friday)

Market Movement Snapshot:

• S&P 500: +0.4%

• Nasdaq 100: +0.6%

• Dow Jones Industrial Average: Steady

• Stoxx Europe 600: +0.2%

• MSCI World Index: +0.2%

Currency Update:

• Bloomberg Dollar Spot Index: +0.2%

• Euro to USD: -0.5% ($1.0524)

• British Pound to USD: -0.1% ($1.2141)

• Japanese Yen to USD: -0.2% (149.32 per dollar)

Cryptocurrency Report:

• Bitcoin: +2% ($26,671.13)

• Ether: +2.2% ($1,621.1)

Bond Market Insight:

• 10-year Treasuries Yield: -1 basis point to 4.52%

• Germany's 10-year Yield: -2 basis points to 2.78%

• Britain's 10-year Yield: Steady at 4.32%

Commodities Update:

• West Texas Intermediate crude: +2.4% to $92.53 a barrel

• Gold futures: -0.7% to $1,906.80 an ounce.

Also Read: Wall Street Anticipates Soft Start as Rate Uncertainties Persist