Image Source: Unsplash

MARKETS

Wall Street closed lower on Wednesday, and oil prices declined as investors digested the FOMC minutes from the U.S. Federal Reserve's latest policy meeting. Meanwhile, Nvidia Corp's (NVDA) shares surged over 4% in extended trading after the mega-cap chipmaker forecasted quarterly revenue above estimates. Despite the bullish momentum rekindled by Nvidia's forecast, the price action has been somewhat muted compared to the 8% bounce anticipated by the options market.

The three major U.S. stock indexes turned decisively lower in the afternoon, extending losses after the Fed's minutes revealed officials' disappointment with recent inflation data. The FOMC minutes indicated that "disinflation would likely take longer than previously thought," further dampening market sentiment.

One year after what could be remembered as a pivotal earnings report, Nvidia has again demonstrated its extraordinary prowess. This was the main takeaway from Nvidia’s Q1 results, released amid much anticipation on Wednesday afternoon in the U.S.

Nvidia reported a revenue of $26.04 billion, far surpassing Wall Street’s expectations of $24.69 billion. This figure marks an astounding 262% year-over-year increase and an 18% rise from the previous quarter. These impressive results will be thoroughly analyzed over the next 24 hours, likely by machines powered by Nvidia's chips. While immediate, definitive interpretations are challenging, the strength of the numbers is unmistakable.

However, whether Nvidia’s stellar performance will drive further short-term gains in its stock remains to be seen. Based on Wednesday's report, it’s improbable that the shares will jump another 15 or 20%. Still, the optimistic outlook is likely robust enough to prevent any “fade the news” proclivity.

Regarding the FOMC minutes, the Hawks were in full flight. During their most recent meeting, officials expressed growing concern about inflation, indicating a lack of confidence to proceed with interest rate reductions.

When interpreting the May FOMC minutes, the best approach might be to avoid reading too much into them. These minutes, released Wednesday afternoon in the U.S., inherently reflect outdated information. The economic data has leaned dovish since Jerome PowPowell'sy 1 press conference, potentially justifying PowPowell'sluctance to signal further rate hikes.

Why did the cross-asset risk market react negatively to the FOMC minutes? Bulls might not be looking for immediate relief in the 10-year yield area, but they are banking on short-term interest rates to ease soon. While a recent Fed Speak acknowledged that last week’s inflation data was a step in the right direction, it unanimously stopped short of signalling the all-clear to price in more or timelier rate cuts. This left rates somewhat unanchored heading into the FOMC meeting.

Many on Wall Street anticipate lower inflation and slowing economic activity later this year, which they believe will lead to a series of rate cuts starting in September. However, the FOMC minutes and subsequent Fed commentary have ruled out earlier cuts, at least without significantly weakening the labour market. This cautious stance from the Fed has dampened expectations for swift monetary policy easing, contributing to the market's adverse reacmarket's

FOREX MARKETS

The anticipated divergences in monetary policy among G10 economies are currently too minor to impact the markets significantly. Persistently high U.K. services CPI and a hawkish stance from the Reserve Bank of New Zealand (RBNZ) failed to lift their respective currencies.

The dollar has strengthened since the start of the week as bond yields edged higher and the equities rally paused. With no Tier 1 U.S. economic data to significantly impact markets, the high-yielding dollar has benefited from less dovish Fed speak and a low-volatility environment favouring the higher-yielding U.S. dollar. In contrast, the Japanese yen has struggled, continuing to serve as the preferred currency for carry trade funding despite a moderate rise in Japanese Government Bond (JGB) yields this week. A Fed rate cut would be necessary for a shift in currency markets, which should see the dollar lose its dominant position.

More By This Author:

The Bar To Hike Again Is Exceptionally High, While The Bar To Cut Is Relatively Low
A Sleepy Macro Week Could Get A Shot Of Adrenaline When Nvidia Reports
Rate Cut Confidence Keeps Volatility In Check