At 6pm GMT, the Federal Open Market Committee (FOMC) minutes for the meeting held on June 9-10 hit the news wires. The meeting produced no changes in the Fed Funds rate, and against popular anticipation, did not see the Fed curbing short-term yields.
The highlight of today’s FOMC minutes release is whether the Fed brought up the subject of negative rates and yield curve control. Early highlights from the FOMC minutes state the following:
- Rates of fund futures due for settlement in 2021 had fallen to slightly negative levels, but survey respondents do not attach much probability to possible deployment of negative interest rates.
- Officials agreed on need for more analysis of yield curve control
- Discussion was held on whether yield curve caps or targets could support forward guidance and complement asset purchases
- Most of Fed officials urged more explicit forward guidance
- A number of participants spoke in favor of tying forward guidance to inflation goals allowing a modest temporary overshoot of 2% target
- nearly all participants had many questions about the cost and benefits of yield curve targets
Implications for the S&P 500
So the FOMC actually discussed the yield curve controls, but apparently did not delve much into it. There is a great chance that this could come up again.
The S&P 500 is rising on the back of the FOMC minutes. Yield curve controls will shift attention from the bonds market to the stock market, which is positive for the S&P 500. This is perhaps why the index is picking up faster at the moment.
The S&P 500 is currently trading at 3116.0 and is approaching the 3137.0 resistance. A break of this price level targets the 3228.4 level. This resistance has to give way for the higher highs to be established, complementing the higher lows to continue the revival of the S&P 500 index.
Conversely, failure to break the 3137.0 resistance allows for a pullback to 3070.8. Below this area, the support zone which has 3028.3 as its ceiling comes into focus. 2844.3 only comes into view if the support zone breaks down, which also stalls the recovery move.
Tomorrow’s Non-Farm Payrolls report is the next fundamental trigger for the S&P 500 index.
S&P 500 Daily Chart