US Markets Mixed as Powell Turns Hawkish
US Stock markets drifted yesterday as the Fed Chair confirmed that rates are likely to remain higher for longer in line with recent strong data prints. The Dow closed the day up 0.17%, but both the S&P and Nasdaq suffered losses again, although nowhere near as much as recent sessions, finishing down 0.21% and 0.12% respectively. The dollar continued to push higher along with US treasury yields, the rate-sensitive 2-year gaining another 3.4 basis points to trade up to 4.972% and the benchmark 10-year adding 3.7 basis points to 4.665%. Oil prices were relatively flat on the day as traders continued to monitor updates from the Middle East and Gold also closed close to flat after a much quieter trading day, now trading around the $2,385 per ounce level.
Powell Confirms Higher for Longer – Dollar to Remain in Demand
Fed Chair Jerome Powell confirmed what many in the market had been thinking and what much of the recent US data has been pointing to – US rates will remain higher for longer in 2024. He advised that “The recent data have clearly not given us greater confidence and instead indicate that is likely to take longer than expected to achieve that confidence”. Given this was confirmation from the top man at the Fed, markets were relatively quiet with stocks drifting and the dollar edging higher, as most traders took this as being priced in by recent moves. But it does represent a strong change in direction from what we heard at the last Fed meeting and many in FX are expecting longer-term players to be looking for levels to enter fresh long dollar positions in the sessions and days ahead. The old premise of ‘Buy Dollars Wear Diamonds’ could be the mantra for the next couple of quarters as markets reprice interest rate differential trades.
Inflation Data and Central Bankers in Focus Today
Inflation numbers are in focus today with a couple of key data releases due as well as more central bankers scheduled to speak. We have already had the Kiwi CPI data print which turned out to be a bit of a mess as a ‘fat finger’ error originally threw out a lower print than expected before being corrected a couple of minutes later, the Kiwi dropped to 0.5862 before swiftly recovering to 0.5902 – not impressing many in the market. There is little out in the rest of the session, but the same data is in focus for the UK once the London session opens with expectations for a 3.1% print for the year-on-year number. Central bankers will once again be in focus in the US as their tour continues today, with Bank of England Governor Andrew Bailey speaking again along with the ECB President Christine LaGarde and FOMC members Mester and Bowman.
