The Fed Minutes Thunderclap

The correction of the equity markets continues in the wake of the violent fall of the Nasdaq yesterday evening (-3.34%). Long-term bond yields also continue to rise: the US 10-year is up to 1.73% while the German Bund has not been so close to zero since May 2019!

The publication of the Fed Minutes was seen as a thunderclap as it highlights the radical change in tone of US central bankers who have for too long wanted to see inflationary pressures as a transitory phenomenon. You can find the main messages contained in these minutes and our analysis in the News sent overnight. On the one hand, the Fed could raise its key rate as early as March. On the other hand, it intends to reduce the size of its balance sheet in parallel (i.e. it will not only stop buying new financial assets but also stop reinvesting them when they reach maturity or even sell them). For markets that have been doped for years (and particularly since March 2020) on liquidity, this is a shock. On the macroeconomic front, the message is ambiguous: the Fed seems confident in the recovery, but the speed with which it has changed its rhetoric also seems to reflect a real fear of structural inflationary slippage.

In the short term, there is no shortage of factors that could reinforce the market movements triggered by the minutes: inflation in Germany today and in the euro zone tomorrow for the month of December, ISM in services, durable goods orders and jobless claims today and above all the US job report tomorrow. The ADP private employment figures released yesterday were well above expectations (+807k jobs in December).