Fed minutes are awaited among gloomy economic data

With worries about a potential recession caused by tighter monetary policy, investors are keeping an eye on the latest Fed minutes on Wednesday to get additional clues on whether the tightening will continue after summer. 

With expectations for aggressive Fed rate hikes slowing, 2-year Treasury yields have suffered, forcing the dollar to take a big step back as the notion of a Fed pause in the summer has begun to gain traction. On the other hand, As a result of Lagarde's comments yesterday, it's now speculated that the ECB will increase the deposit rate by at least 50 basis points this summer in order to combat higher inflation tied to rising energy prices caused by the war in Ukraine and a massive public-sector stimulus following the Coronavirus pandemic. 

It is hard to ignore a day when the services PMI, new home sales, and Richmond Fed index all fall short the expectations, even if official data on business activity and inflation indicate no imminent slowdown.

The number of new homes sold in the US fell 16.6% from March to April, the most significant drop in nine years, resulting in a decline in the yields on Treasury bonds once again. On Wednesday, the benchmark 10-year note was at 2.768%, and the two-year note was at 2.464%, the lowest level since April 19, before rising to 2.483%.

As a result of an unexpected decline in private sector growth in the UK in May that has rekindled fears of a recession, the pound lost value, and investors fled to government bonds for safety.

The gold price also held steady at $1,865.39 an ounce after inching up to its highest in two weeks on Tuesday as a weaker US dollar and lower Treasury yields increased the metal's appeal as a safe-haven investment again.

Events of today

There are several key economic indicators to look forward to on Wednesday, including German GDP growth in Q1, US durable goods orders, and crude oil inventories. However, the major highlight for the day is the release of the minutes of the latest Fed meeting, which is due today.

Germany is on the cusp of recession following a 0.3% contraction in the fourth quarter of 2021. The German economy is forecast to grow by 0.2% in Q1 of 2022. That would defy fears that it would register a second consecutive quarter of contraction if it were to happen.

It is expected that growth in US core durable goods orders has slowed for the third straight month in April, with a 0.6% increase month over month forecast.