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Markets are cautious ahead of Powell’s speech

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Miguel A. Rodriguez
Miguel A. Rodriguez
05 November 2022
Investors are eagerly awaiting Powell's speech for any insight into how aggressively the Fed still plans to raise interest rates

Stock markets continued to rise on Thursday, awaiting the two most important events of the week: the release of the Fed's preferred inflation data and Jerome Powell's remarks at the Jackson Hole symposium.

 

Chairman Jerome Powell's speech will be scrutinized for signs that an economic slowdown could alter the Fed's strategy. Also, investors are waiting to see whether the central bank can achieve a "soft landing" for the economy.

 

The market now sees a slightly higher probability of a third 75 basis point rate hike by the Fed at its policy meeting next month, compared to a smaller 50 basis point rate hike. This is because the recent comments from Fed officials are pointing not only to more aggressive hikes but also to keeping rates high for a longer period.

 

Investors will also be looking for details on the Fed's plans to reduce its nearly $9 trillion balance sheet, which began in June and directly affects the treasury bond. Although yesterday yields fell after a highly demanded Treasury bond auction,

it helped stock market indices experience significant gains.

 

The Nasdaq technology index rose 1.64% at the end of the session, already accumulating two days of recovery after rebounding from the support zone of 12,900, where the 100-day moving average also passes.

 

The comments made today by Chairman Jerome Powell will be fundamental for the future performance of the indices. There are two options, either Powell is more cautious about tightening monetary policy in the face of signs of a decline in inflation to avoid causing further damage to the economy, or he continues with the hawkish speech encouraging expectations of more aggressive rate hikes. In the latter’s case, the argument would be the fight at all costs against inflation, which will negatively impact the stock indices. In the first case, the indices are expected to react positively.

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Sources: Bloomberg, Reuters

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Miguel A. Rodriguez
Miguel A. Rodriguez
Financial Writer

Miguel worked for major financial institutions such as Banco Santander, and Banco Central-Hispano. He is a published author of currency trading books.