American markets are still adrift, and Powell seems undecided

By: Miguel A. Rodriguez

12:13, 09 March 2023


FED's chairman shifted his language to leave open the option of raising interest rates by merely 25 basis points; oil on a downward trajectory as China anticipates a decrease in consumption

The market perspective has been affected slightly by Jerome Powell's second appearance before the United States Congress. 

A minor adjustment in the wording of his speech signals that he left open the prospect that the Federal Reserve's next move would be to raise rates by 25 basis points only - rather than the 50 basis points that the market anticipated yesterday. Powell stated that additional economic data must be analyzed before deciding on the next rate increase.

Related article: US Markets 

Remember that after Tuesday's comments, the market increased the likelihood of a 50 bp jump to over 50%. 

But, following Powell's speech yesterday, the situation appears to have shifted, although it is true that the level of uncertainty remains quite high. Much will depend on tomorrow's non-farm payrolls and unemployment rate reports.  

Yesterday, statistics for ADP private employment, which was higher than anticipated, and JOLTS job openings, which were also somewhat higher than anticipated but lower than the previous month's data, were revealed. Neither of the two numbers had a substantial effect on the market. 

The interest rate curve forecasts future increases in interest rates, with the 2-year bond exceeding 5%, while the 10-year bond remains around 4%, an inverted curve with a difference of more than 100 basis points between the two maturities. 

This is typically seen as a precursor to an economic recession, despite the fact that neither the growth nor employment data show signals of weakening at this time. As a result of the Federal Reserve's excessively restrictive monetary policy to combat inflation, the economy could suffer a severe decline. This is why longer-term interest rates continue to be maintained. 

Currently, the market continues without a distinct direction. The performance of Wall Street stock markets varied across indices, with the Nasdaq 100 outperforming.

Related article: Dollar Index 

After increasing in response to Powell's comments, the US dollar maintained its levels from the day before. Oil continues to lose ground due to concerns of weaker demand in China after the Chinese government's growth estimates were somewhat less optimistic than anticipated. Yesterday, WTI oil traded in the midst of its recent trading range, between 81.70 and 72.00 dollars a barrel. 



Sources: Bloomberg, Reuters 

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