Stocks Drop on Wall Street – Dow down 0.7%
US stocks drop off from recent high levels yesterday as investors digested more strong US data and a resolute Fed Chair pushing back against imminent rate cuts. The Dow Jones led the way lower, dropping 0.71% by the close, followed by the S&P, down 0.32% and the Nasdaq, off 0.20% after the ISM Service PMI data printed higher than expected and Jerome Powell advised that more evidence was needed of downward inflation for the Fed to cut rates.
US treasury yields took another step higher, the 10-year adding 13 basis points and the 2-year gaining 10 basis points to close at 4.16% and 1.47% respectively. The dollar also gained ground against most of the majors, the Dxy adding another 0.36% with Euro dropping to levels not seen since mid-November. Oil gained around 1% as geopolitical tensions weighed and Gold took another step lower.
Top of the Stocks??
US Stocks markets lost ground in trading yesterday as data once again confirmed a resilient US economy and Fed Chair Jerome Powell again pushed back market expectations of a rate cut in the short-term. The market has had to dramatically adjust its view on Fed rate cuts over the last couple of weeks and it now has just a 15% chance of a cut in March priced in, down from nearly a done deal early in the year. Huge jobs numbers on Friday which were backed up by a strong ISM Services PMI data print last night plus further ‘higher for longer’ rhetoric from the Fed have tempered rate easing expectations and now investors are assessing what this means for the latest bull run in stocks. Much of the late run up in December was attributed to the Fed’s pivot on rates so many are now thinking that a correction is due across the board to bring levels back into line with Fed expectations.
RBA in Focus for Traders Today
Asian markets are set to open the day on the back foot as they take their lead from Wall Street which is digesting more strong US data and dropped overnight. The focus will move swiftly to Australia midway through the trading day as the Reserve Bank takes center stage for its latest rate update, a ‘no change’ call is firmly expected but once again the guidance given in the statement and press conference should see moves in Aussie products. The European session is relatively light on data releases, although sterling traders will be looking closely at the UK’s Construction PMI data release and Cad traders will be on their toes in the US session with the Ivey PMI data due out as well as a speech from Bank of Canada Governor Tiff Macklem. We also hear from FOMC member Loretta Mester during the day as she talks in Columbus, Ohio.
