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LIVE MARKETS-Fed readies its hike

Wed, 26th Jan 2022 19:26

* Major U.S. indexes advancing with Nasdaq leading gains

* FOMC leaves rates unchanged, moves closer to rate hike

* Tech leads S&P sector gainers; utilities weakest group

* Dollar, bitcoin, crude rise; gold falls

* U.S. 10-Year Treasury yield rises to 1.80%

Jan 26 - Welcome to the home for real-time coverage of
markets brought to you by Reuters reporters. You can share your
thoughts with us at markets.research@thomsonreuters.com

FED READIES ITS HIKE (1419 EST/1919 GMT)

The Federal Reserve on Wednesday signaled it is likely to
raise U.S. interest rates in March and reaffirmed plans to end
its bond purchases that month before launching a significant
reduction in its asset holdings.

The combined moves will complete a pivot away from the loose
monetary policy that has defined the pandemic era and toward a
more urgent fight against inflation.

Since just prior to the release of the statement until just
after 2:15 PM, the major indexes all weakened. All major S&P 500
sectors have also lost ground.

Regarding the Fed's statement, Russell Price, chief
economist at Ameriprise Financial Services, said, "The statement
still leaves a lot of questions to be answered particularly when
it comes to the balance sheet roll off. There wasn't a whole lot
of detail provided."

Price added, "The Fed provided some clarity on the prospect
of rate hikes but not all the clarity markets were looking for.
There's still some uncertainty when it comes to the balance
sheet roll off. The market's glad to get a little more clarity
given the uncertainty that accompanies transition periods like
this."

Here is where markets stand ahead of Powell's 1430 EST/1930
GMT press conference:

(Terence Gabriel, Sinéad Carew)

JUST DO IT ALREADY FED (1215 EST/1715 GMT)

While volatile markets have suggested investor jitters ahead
of Wednesday's Federal Reserve statement, JonesTrading Chief
Market Strategist Michael O' Rourke seems more anxious about
what he believes the Fed won't do, rather than what he expects
it will do, ie not much yet.

In a research note sent out late Tuesday, O' Rourke says the
FOMC will probably announce it is holding policy steady, but it
will set the stage for a March hike and an end to tapering.

However, O' Rourke complains that a delay of "the necessary
and inevitable" will only serve to "leave investors in market
limbo for the next 6 weeks until the March meeting."

Ahead of a tightening cycle, he says there is no rush for
investors to further commit to an expensive market.

"It is hard to envision the end of a process that has not
started and therefore, uncertainty abounds," he writes.

And O' Rourke believes the "policy tightening cycle will be
9 months behind schedule if the FOMC waits until March to act."

But quick action today would re-establish "a modicum of
credibility" and afford policy flexibility tomorrow, as per
O'Rourke.

While the Fed has long held a policy of telegraphing its
moves well in advance, the strategist maintains that the market
would prefer "short bursts of meaningful active measures that it
can digest and proceed onward from, as opposed to a long, drawn
out and uncertain process."

"If the Fed were to take more aggressive action, the most
likely tactic would be to accelerate the end of asset purchases
almost immediately," he said, adding that, "to make a real
statement that the central bank is serious about inflation, the
FOMC could raise interest rates."

He reminds us that the FOMC has not surprised the market
with a larger than expected Fed Funds increase since February
2000, but still O' Rourke says he has a "lingering hope" for a
more aggressive Fed.

Of course, back then, the market peaked the following month
in March, and then declined into a deep bear market.

(Sinéad Carew, Terence Gabriel)

*****

PRE-FED DATA SHOWS U.S. ECONOMY NEARING 'NORMAL' (1115
EST/1615 GMT)

Data released on Fed Wednesday provided welcome evidence
that the U.S. economy continues to shake off the dust of the
pandemic recession.

Sales of newly constructed U.S. homes surged by
11.9% in December, blasting past the 2.2% gain analysts
expected.

That amounts to 811,000 units at a seasonally adjusted
annualized rate, 51,000 units above consensus, rising again
above pre-COVID levels.

It was a pleasant surprise, and combined with an upward
revision of December building permits data - to 9.8% monthly
increase from the previously stated 9.1%, bodes well for the
homebuilding sector.

That sector has been supported by a dwindling supply of
homes on the market amid a demand boom, but record low
inventories and supply scarcity remain headwinds.

"Sales have undershot the pace implied by the path of
mortgage applications in recent months, so a rebound was
overdue," writes Ian Shepherdson, chief economist at Pantheon
Macroeconomics. "We see scope for sales to rise further for the
next couple months, but we then expect higher mortgage rates to
bite in the spring."

Speaking of which, rising interest rates sent demand for
home loans plunging 7.1% last week, according to the Mortgage
Bankers Association (MBA).

The average 30-year fixed contract rate gained 8
basis points to 3.72%, in its fifth consecutive gain, reaching
the highest level since March 2020.

This sent refi demand - which accounts for the bulk of total
applications - down 12.6%. Applications for loans to purchase
homes were off 1.8%.

"After almost two years of lower rates, there are not many
borrowers left who have an incentive to refinance," says Joel
Kan, associate vice president of economic and industry
forecasting at MBA. "Of those who are still in the market for a
refinance, these higher rates are proving much less attractive
to them."

Finally, the busy Commerce Department issued its advance
take on the goods trade balance and wholesale inventories for
December.

The gap between the value of goods imported to the U.S. and
domestic merchandise exported abroad widened last
month to $100.96 billion.

While imports and exports both increased, by 2.0% and 1.4%
respectively, with imports' larger piece of the trade pie
contributing to the widening.

"Trade flows will likely continue to be impacted by
pandemic-related disruptions in the near-term," says Rubeela
Farooqi, chief U.S. economist at High Frequency Economics. "But
imports and exports should eventually rebalance as these effects
diminish and global economies come back online more completely."

The value of goods stored in wholesaler warehouses
grew by 2.1%, building on November's upwardly
revised 1.7% expansion.

Retail inventories, excluding autos, increased 3.6%,
building on the prior month's 1.2% growth.

This bodes well for fourth-quarter GDP - the Commerce
Department is due to take its first stab at that number on
Thursday - and also suggests some steps toward normalization in
the stricken global supply chain.

"Viewed in isolation, the trade numbers imply a small
downward revision to tomorrow’s first estimate of Q4 GDP
growth," Shepherdson says. "But the advance indicators report
also shows that inventories of wholesale and retail goods both
rocketed."

"Taking these data into account alongside the trade numbers,
we are revising up our Q4 GDP forecast to 7.2% from 5.5%,"
Shepherdson added.

Wall Street burst from the starting gate into solid green
territory at the opening bell, but those gains have since pared
as zero hour approaches for the Federal Reserve's policy
statement expected at 1400 EDT.

(Stephen Culp)

*****

WALL STREET OPENS HIGHER ON FED DAY (0953 EST/1453 GMT)

Wall Street's major averages are rallying on Wednesday
morning and most of the S&P's 11 major sectors are in the green
with technology leading the charge as bullish
corporate forecasts gave it a boost.

That said, while the bullish start may encourage some
investors, if the intraday volatility of the last few sessions
is any guide, anything could happen, especially in a session
that will be bookmarked by a Federal Reserve statement after the
conclusion of this week's FOMC meeting.

Meanwhile, investors are still keeping a cautious eye on
Russia/ Ukraine tensions after Russia warned on Wednesday that
imposing sanctions on President Vladimir Putin personally would
not hurt him, but would be "politically destructive", after U.S.
President Joe Biden said he would consider such a move if Russia
invaded Ukraine.

However, earnings reports are definitely cheering up
investors with Microsoft Corp gaining 5% after
estimating current-quarter revenue broadly ahead of market
estimates, driven in part by its cloud business and Chipmaker
Texas Instruments Inc is rising 3% as it also gave a
positive outlook based on strong chip demand.

Here is your early trading snapshot:

(Sinéad Carew)

*****

S&P 500: ON TRACK FOR BIGGEST JANUARY DROP IN ITS HISTORY
(0900 EST/1400 GMT)

Wednesday's results from the latest FOMC Meeting may be
taking on added significance given that the S&P 500 ended
Tuesday on track for its worst January performance in its
history.

Indeed, the SPX is down 8.597% for the month, putting in on
track for a bigger January slide than 2009's 8.566% tumble,
which stands as the worst start to a year for the benchmark
index using Refinitiv data back to early 1928.

Meanwhile, based on the daily RSI, the S&P 500 ended Tuesday
at its most oversold level since late-February 2020:

It now remains to be seen if this will prove to be a
sufficiently washed out condition. Of note, since late 2018, the
two most oversold readings on a daily basis, in October 2018 and
February 2020, occurred in the early stages of declines. It was
not until the SPX made new lows, coupled with a momentum
convergence, that true bottoms formed.

If the SPX breaks Monday's low at 4,222.62, and the 23.6%
Fibonacci retracement level of the entire March 2020-January
2022 advance, at 4,198.70, it can suggest risk for much more
significant downside. The 38.2% Fibonacci retracement of the
March 2020-January 2022 advance is at 3,815.20.

On strength, the 200-day moving average, which ended Tuesday
around 4,432, presents resistance. The January 10 low, at
4,582.24, also looks to be a significant hurdle.

In the event of sudden upward reactions, traders will be
assessing their structure, character and extent closely. This
especially because, a CBOE Put/Call measure, which can be a
considered a contrarian sentiment indicator, has broken out to
66.6%, or its highest level since May 2020, and a
number of market internal measures have yet to clearly
stabilize.

(Terence Gabriel)

*****

FOR WEDNESDAY'S LIVE MARKETS' POSTS PRIOR TO 0900 EST/1400
GMT - CLICK HERE:

(Terence Gabriel is a Reuters market analyst. The views
expressed are his own)

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