Federal Reserve Bank Chair Jerome Powell smashed global markets yesterday as he advised the Senate to be prepared for bigger rate hikes if economic data continues to suggest that inflation is far from under control. The top US indices all finished comprehensively in the red, the Dow leading the way closing over 1.7% down closely followed by the S&P and Nasdaq which finished 1.5% and 1.3% down respectively. US treasury yields jumped once again with the 2 year yields, which best represents short term interest rate expectations, topping 5% for the first time since 2007.
The dollar surged against all comers after Powell’s testimony with the major currencies taking a hit as market expectations for a 50bps rate hike this month jumped to 70% from 30% just a couple of days ago. Gold was smashed, with dollar buying taking the precious metal down over 1% on the day. Investor concerns were realized after the recent strong data from the US was clearly acknowledged by the Fed Chair, he added that the Fed would not consider moving it’s inflation target from 2% and this is a further indication of higher rates for longer.
Looking ahead at today’s trading sessions and expect the repercussions of Powell’s testimony to reverberate throughout the day and up until his next appearance when the US session opens again. We do have further risk events occurring today with ECB President Lagarde speaking in the European session. Once again though the real action is reserved for the New York trading day, we have two US employment figures released today in the form of the ADP Non-Farm data and the Jolts Job Openings and both will be closely watched as a front runner for Friday’s big NFP release. In addition to this we have the small matter of the Bank of Canada’s rate announcement and statement before Powell hits the newswires again.
