Daily Market Color

Equities Fall Ahead of Upcoming Rate Hike

Stocks suffer ahead of Fed’s Wednesday rate hike. The Nasdaq-100 sold off more than it has in over a month (-2.09%), with declines in Apple and Microsoft spurring the losses ahead of this week’s earning reports from Alphabet Inc. and Meta Platforms. The move also comes ahead of this Wednesday’s rate hike decision, where a 25 bp hike is effectively locked in. Investors will be more focused on the tone that officials set with regard to future rate hikes. To date, Fed Chairman Jerome Powell has dismissed the notion of rate cuts occurring at some point this year, and so it will be crucial to see if his viewpoint has changed.

Activity at the Fed discount window hits highest level in at least seven years.  Daily borrowing at the Fed, typically a last resort funding source, rose to $120 billion on Jan 27th per New York Fed data published today. Additionally, domestic banks have become increasingly bigger participants at the discount window, with their share of borrowings in the market climbing from 5% in 2021 to 25% recently. The heightened usage amongst banks corresponds with commentary in Q4 earnings releases that highlights the challenges faced with decreased deposit bases. A recent Fed survey offered further context on how banks plan to manage these funding challenges, reporting that they are looking to borrow in unsecured funding markets, raised brokered deposits, or tap greater levels of CDs.

Day ahead. Chicago PMI will be released at 9:45 AM, which is forecasted at 45.2, a slight increase from last month’s level of 44.9. CB consumer confidence will follow at 10 AM, where a slight increase from the most recent figure is also expected.

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