Stocks Hit, Dollar Up On Powell’s ‘Tough Reminder’: Markets Wrap
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(Bloomberg) -- Stocks dropped while the dollar climbed as Jerome Powell signaled the peak in interest rates could be higher than anticipated after data showed both inflation and the labor market are running hot.
His hawkish tone during a Senate testimony pushed the S&P 500 down as much as 1%. Treasury yields climbed across the curve, led by shorter maturities — deepening the inversion of the keenly watched two-year to 10-year gap to a level last seen in four decades. The dollar rose against all of the Group-of-10 currencies.
Interest-rate swaps showed a shift in bets for the March 22 meeting, with a half-point hike being seen as slightly more likely than a quarter-point move. Traders are betting that the Fed will raise the key borrowing costs by 100 basis points over the next four meetings to a peak just below 5.6%.
Read: Fed Chair Powell’s Remarks to the Senate Banking Committee
His semiannual two-day testimony will be closely watched because it will probably be his last public remarks before the Federal Open Market Committee next meets March 21-22.
- Callie Cox at eToro:
Powell just said the quiet part out loud. The economy is performing impressively well, but that could complicate the Fed’s efforts to bring inflation down. Therefore, the Fed could accelerate rate hikes and hike more than expected to bring inflation down. This isn’t surprising news, but it’s a tough reminder for markets after such a brisk rally. It could be time for investors to tread carefully because this inflation fight is far from over.
- Krishna Guha at Evercore:
Fed chair Powell’s prepared testimony to Congress is more hawkish than we had anticipated and risk-off. The analysis of economic data is along the lines we had expected and Powell continued to point to policy lags, but the policy lean is more aggressive and forward-leaning. We do not think this means that a 50bp rate hike in March is likely and continue to believe it would require very hot February data such that the estimated peak rate would move up 50bp rather than 25bp (which remains our strong base case) on the principle that the Fed cannot end a meeting further from its destination than it began.
- Ian Lyngen at BMO Capital Markets:
Powell’s prepared text was biased hawkishly (more so than we anticipated) with comments that the Fed is “prepared to increase the pace of hikes if needed” and the “ultimate rate peak is likely higher than expected.” He went on to note decisions will be made “meeting by meeting.”
US payroll growth has topped estimates for 10 straight months in the longest streak in decades, a trend that, if extended, will boost pressure on the Fed to keep raising interest rates. Beginning in April last year, the median forecast in each survey of economists fell short of the government’s initial estimate of payrolls by an average of 100,000 a month — the most in data compiled by Bloomberg back to 1998.
Ahead of the February jobs report on Friday, the projection is for a 224,000 increase, which would be about half the pace seen in January.
Key events this week:
- Euro area GDP, Wednesday
- US MBA mortgage applications, ADP employment change, trade balance, JOLTS job openings, Wednesday
- Fed Chair Powell’s semiannual Monetary Policy Report to the House Financial Services Committee, Wednesday
- Canada rate decision, Wednesday
- EIA crude oil inventories, Wednesday
- China CPI, PPI, Thursday
- US Challenger job cuts, initial jobless claims, household change in net worth, Thursday
- Bank of Japan policy rate decision, Friday
- US nonfarm payrolls, unemployment rate, monthly budget statement, Friday
Some of the main moves in markets :
- The S&P 500 fell 1% as of 11 a.m. New York time
- The Nasdaq 100 fell 0.8%
- The Dow Jones Industrial Average fell 0.9%
- The Stoxx Europe 600 fell 0.7%
- The MSCI World index fell 1%
- The Bloomberg Dollar Spot Index rose 0.8%
- The euro fell 0.9% to $1.0584
- The British pound fell 1.3% to $1.1872
- The Japanese yen fell 0.7% to 136.83 per dollar
- Bitcoin fell 0.4% to $22,320.16
- Ether fell 0.4% to $1,560.5
- The yield on 10-year Treasuries advanced two basis points to 3.97%
- Germany’s 10-year yield declined four basis points to 2.71%
- Britain’s 10-year yield declined three basis points to 3.84%
- West Texas Intermediate crude fell 2.4% to $78.52 a barrel
- Gold futures fell 1.8% to $1,821.60 an ounce
This story was produced with the assistance of Bloomberg Automation.
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