North American News
US equities take a beating as rate hike expectations rise after Powell
- The market didn’t like what it heard
US equities slumped hard after Fed Chairman Jerome Powell indicated that interest rates could go higher than the December dots indicated and could get there in 50 bps increments if the data stays hot.
- S&P 500 down 63 points, or 1.5% to 3986
- Nasdaq -1.25%
- Russell 2000 -1.5%
- DJIA -1.7%
Powell: The inflation we have now doesn’t have much to do with the supply chain
- Comments from Powell in the Q&A
- Goods inflation has been coming down for some time
- Housing services will come down in 6-12 months
- This big services sector, including financial services, medical services, travel and leisure, that’s thee source of the inflation we have no, which doesn’t have much to do with the supply chain
- Wages have been moderating without softening in the labor market
- We have many unusual factors affecting inflation and I don’t think anyone knows how this is going to play out
- The economy is past most estimates of full employment
- We’re watching the broader services sector very carefully
- We are carefully for the lags in monetary policy coming into play
- Occupancy of office space is remarkably low; over time that space will turn into condos
- Nothing about the data suggests we have tightened too much
- We still have significant data to see before March meeting
- The ultimate rate we write down in the dot plot ‘may well be higher’ than December
Atlanta Fed GDPNow falls to 2.0% from 2.3% last
- The growth slows from the high of 2.8%
The Atlanta Fed GDPNow estimate for 1Q growth falls to 2.0% from 2.3% at the last release. In their own words:
The GDPNow model estimate for real GDP growth (seasonally adjusted annual rate) in the first quarter of 2023 is 2.0 percent on March 7, down from 2.3 percent on March 1. After recent releases from the US Census Bureau, the US Bureau of Economic Analysis, and the Institute for Supply Management, the nowcasts of first-quarter real personal consumption expenditures growth and first-quarter real gross private domestic investment growth decreased from 3.7 percent and -6.1 percent, respectively, to 3.5 percent and -6.4 percent.
US treasury auctions off $40 billion of 3 year notes at a high yield of 4.635%
- WI 4.641% at the time of the auction
- High-yield 4.635%
- WI level at the time of the auction 4.641%
- Tail versus -0.6 basis points versus six-month average of 0.3 basis points
- Bid to cover 2.73X times versus six-month average of 2.56X
- Dealers 16.84% versus 21.1% six-month average
- Directs 20.67% versus six-month average of 18.9%
- indirects 62.49% versus six-month average of 60.1%
Bank of America CEO says he expects interest rates to begin dropping this time next year
Bank of America CEO Moynihan spoke in an interview with Bloomberg TV.
Headline comments:
- US interest rates will begin falling in Q2 2024
- Don’t think we will see a deep recession in the US
- The US will have a “technical recession”
Commodities
Silver is sinking into support on hawkish Fed
- Silver, XAG/USD is under pressure as US Dollar rallies.
- Federal Reserve Powell strikes an uber-hawkish tone to Congress.
Silver has dropped like the heavyweight that it is, breaking through a couple of layers of key support following uber rhetoric from the Federal Reserve’s chairman, Jerome Powell on Tuesday. At the time of writing, Silver, or XAG/USD, is down some 4.26% after falling from a high of $21.1412 to a low of $20.0853.
In remarks to Congress, Federal Reserve’s chair Jerome Powell said that the US central bank will stay the course until the job is done. He also said that the ultimate level of interest rates is likely to be higher than previously anticipated, adding that the Fed is and will be prepared to increase the pace of rate hikes if data indicates it is warranted:
“The latest economic data have come in stronger than expected, which suggests that the ultimate level of interest rates is likely to be higher than previously anticipated. If the totality of the data were to indicate that faster tightening is warranted, we would be prepared to increase the pace of rate hikes.”
Meanwhile, Fed funds futures traders have now raised bets that the Fed will hike rates by 50 basis points at its March 21-22 meeting to 56% and a 25 basis points increase is now seen as just a 44% likelihood. Traders are now also pricing for the rate to peak at 5.57% in September and the US Dollar is firmly bid as result.
Saudi foreign minister: No change needed in oil production this year
- Comments from the Saudi foreign minister
- We are committed to a stable oil market
- Energy minister views that oil market doesn’t need production changes this year
WTI crude oil future settle at $77.58
- Down -$2.88 or -3.58%
WTI crude futures are settling the day at $77.58. That’s down $2.88 or -3.58%. The high price reached $80.94. The low price extended to $77.47.
Yesterday the price closed above its 100 day moving average for the first time since November 4. However, after extending to a new high going back to January 27, the price rotated back to the downside falling below the 100 day moving average at $79.80 in the process
U.S. energy envoy Hochstein says Russian oil price caps are working well
U.S. Energy Envoy Amos Hochstein spoke on the sidelines of an energy conference, CERAWeek, in Houston.
- “I think the beauty of the process is that it is working and that Russian oil and Russian products are being traded below the price cap,”
- “I don’t know why Russia is cutting their production”
- “I think the price has not gone up that much. We want to make sure that Russian barrels are on the market and are trading at a discount.”
EU News
European equity close: Declines worsen after Powell
- Closing changes in European equities
Losses in Europe are about half of what they are in the US. The main indexes were higher for most of the day but stumbled just ahead of Powell and further after his hawkish comments.
- Stoxx 600 -0.8%
- German DAX -0.6%
- France’s CAC -0.5%
- UK’s FTSE 100 -0.2%
- Spain’s IBEX -1.0%
- Italy’s FTSE MIB -0.6%
Germany January industrial orders +1.0% vs -0.9% m/m expected
- Latest data released by Destatis – 7 March 2023
- Prior +3.2%; revised to +3.4%
Despite the headline reading showing a beat, the details reflect a bit of mixed picture to start the year for German industrial orders. Domestic orders dropped by 5.3% in January, while foreign orders increased by 5.5%. Here’s the breakdown if you want to go by how things are by sectoral performance:
- Capital goods +8.9%
- Intermediate goods -8.9%
- Consumer goods -5.5%
Switzerland February seasonally adjusted unemployment rate 1.9% vs 1.9% expected
- Latest data released by SECO – 7 March 2023
- Prior 1.9%
- Unadjusted unemployment rate 2.1%
- Prior 2.2%
Other News
Chinese Foreign Minister Qin Gang says will oppose cold war mentality
Chinese Foreign Minister Qin Gang press conference on the sidelines of the two sessions.
Q&A format, both Chinese and foreign reporters present.
This marks Qin’s first appearance on the two sessions since he took office three months ago.
- We resolutely oppose all forms of hegemony, cold war mentality
- We resolutely defend national sovereignty and security
- We oppose decoupling and unilateral sanctions
The comments come following Chinese President Xi Jinping’s confrontational remarks on Monday that are being read as heightening the prospects of a further US-China Cold War:
- “Western countries—led by the U.S.—have implemented all-round containment, encirclement and suppression against us, bringing unprecedentedly severe challenges to our country’s development”
This is a departure for Xi who is usually circumspect and very limited indeed with comments critical of the US in public. He doesn’t refrain in private, of course, he has been harsh in internal speeches.
More from the Chinese Foreign Minister:
- Whatever currency that is used in China-Russia trade should be a currency that’s simple to use, safe, trustworthy
Most international trade is denominated in the US dollar. This doesn’t really suit these two states. The yuan would probably be better than the ruble at this time of sanctions on Russia should these two go that way.
JP Morgan repeats projection for risk assets bear market
JPMorgan analyst Marko Kolanovic is probably looking way into the future here … no sign of a central bank pause near term lket alone a pivot:
- While the day-to-day interplay of investors, speculators, the options market, systematic investors, etc. can produce strong rallies
His team are still saying that:
- we maintain that risk assets are in a bear market and will not bottom until central banks start cutting rates
Cryptocurrency News
Fed Chair Jerome Powell says interest rates may go higher, Bitcoin triggers rollercoaster reaction
- Federal Reserve Chair Jerome Powell stated that the interest rates would be higher than anticipated.
- Powell also stated that, at the moment, there is little evidence of disinflation in core services.
- Crypto market immediate reaction to the comments was negative, with Bitcoin price slipping below $22,000.
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