Greetings from the Fed, Surprise from ADP and Risky Asset Issues

6 янв. 2022 г.

Buyers of risky assets were not in the mood for fun yesterday. The US stock market collapsed, commodity assets went into deep minus, crypto, of course, fell.

Tellingly, nothing fundamentally new has happened. It's just that the Fed was reminded that 2022 will be the year of tightening of monetary policy in the United States. Although everyone knew about it.

The minutes of the last meeting of the FRS Open Market Committee were published yesterday, which were extremely aggressive. To begin with, FOMC members believe the labor market is approaching full employment, while inflation is a major concern. That is, they made it clear what part of the Fed's dual mandate is now a priority.

Recall that at the last meeting of the FOMC, it was decided to accelerate the reduction of the asset repurchase program, as well as updated forecasts for the FRS rates, which suggest up to 3 rate hikes in 2022. In addition to all this, in the text of the protocols, there was a mention of the reduction in the Fed's balance sheet, which finished off buyers.

All in all, the worst news for the US stock market is hard to imagine. The central bank is clearly embarking on a warpath. The US stock market bubble was inflated mainly by the Fed by injecting trillions of cheap money. So the texts of the last FOMC meeting show that in 2022 the Fed will carry out the opposite processes - to withdraw money, with all the ensuing consequences for the stock market.

The protocol texts that the US labor market is approaching full employment are in very good sync with yesterday's ADP employment data, which turned out to be the best since May 2021. The growth in the number of jobs in the private sector amounted to 807,000 per month, which significantly exceeded the forecasts of experts (375,000) and the November increase of 505,000. The main generator of new jobs was the leisure and hospitality sector (246,000 new vacancies).

And finally, we note that the pandemic continues to break records. The number of new cases of diseases worldwide has exceeded 2.5 million per day. But even a couple of weeks ago, the number did not exceed 1 million. Since the data from ADP did not take into account the last couple of weeks of December, a very unpleasant surprise may await the markets next month.