Fed Chairman Jerome Powell's hawkish remarks have heightened concerns about a recession and interest rate hikes. In his speech yesterday to the Senate Banking Committee, Powell said the need for higher, faster and more permanent rate hikes has increased after growth and inflation data in the first two months of the year exceeded expectations. The Fed chief is scheduled to give further testimony before Congress later today.
Markets now believe the probability of a 50 basis point rate hike is much higher, giving it more than a 70% chance, while expecting rates to rise above 5.6%. The higher rate forecasts sent 2-year Treasury yields to a new 2007 high of 5.081% overnight, while 10-year Treasury yields slipped and remained below 4%. The spread between the 2-year and 10-year Treasury is now about 108.5 basis points – the steepest increase since August 1981 and a clear sign that markets expect economic growth to slow and interest rates to rise further in the near future.
Equity markets came under pressure, but managed to stabilize in pre-market trading in Europe and the US. Strong German industrial production supported European equity futures, while strong ADP employment data reinforced expectations that the Fed sees more room and reasons to raise interest rates and weighed on Wall Street. Labor market data remains in focus and Friday's NFP data in particular will play an important role in investors' expectations for further rate hikes.
The USD strengthened again as markets anticipate another Fed funds rate hike. The USD hit a new high of 2023 in the last session and remains in demand.
Commodity prices came under pressure from a stronger USD and expectations of a prolonged tightening monetary policy. Gold prices in particular fell sharply on higher Treasury yields and expectations of a rate hike. However, rising Chinese demand continues to support industrial metals and energy prices. Oil prices will also be strongly influenced by the new data on US oil inventories.
👁 ROB'S MARKET OVERVIEW:
March 08 – 2023
🇺🇸 US Markets ↕️
Cyclical Stocks ↕️
Tech/Growth Stocks ↕️/↘️
Financial Stocks ➡️
Defensive Stocks ➡️
Energy Stocks ➡️
AUD ➡️/↗️ (after sharp losses, some rebound potential)
JPY, CHF, EUR, CAD ➡️
⚒ Commodity Markets
Oil prices ↕️ (stabilizing after further losses)
Natural Gas prices ➡️/↘️
Metal prices ➡️/↗️ (stabilizing after losses yesterday)
Precious Metal prices ➡️/↘️ (limited downside potential)
(*↗️ bullish, ↘️ bearish, ➡️ sideways / stable, ↕️ mixed / volatile)
Yours, Robert 🇺🇸🏦💱📈