Powell promised higher rates for longer
BY Janne Muta|March 8, 2023
Risky assets plunged after Powell promised more hikes and a higher terminal level than markets had adjusted for: “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,” He referred to the recent strong data from the US economy: “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.”
It seems like the Fed is prepared to accept a hard landing is a real possibility and they aren’t afraid of it. This would mean we are headed to a recession and a period of high inflation simultaneously, a rather awkward scenario for the stock markets.
Powell’s speech weighed on DJ
After the strong downside momentum day the DJ is bearish below 32 930. Powell’s view was that more rate hikes and a higher terminal rate are needed as the recent macro data has been so good. This pulled the rug from under the markets and the DJIA index dropped 1.7%. After new and unanticipated bearish information hits the market it’s common to see the impact lasting (at least) for several days.
Therefore, it’s more likely that the bears are on the driving seat for a while. Below 32 930 the market is likely to test the 32 630 level while above the 32 930 level, we might see the DJ trading to 33 000 or so.
NAS bearish below 12 188
Nasdaq dropped 1.25% after Powell’s speech pushed the market through the key support level of 12 274. The market reached the 12 165 – 12 200 range pretty quickly and is now bearish below 12 188. Above the level, the market could move to 12 216. Below 12 188 it’s likely we’ll see the market trading to approximately 12 000.
DAX dropped as the ECB might follow the Fed
DAX is bearish below 15 540 after breaking the key support at 15 585. Below 15 540 the market is likely to move to 15 375, while above the level the market probably tests 15 585 again. Now that the Fed has signalled it will hike more than expected it’s likely that the ECB will follow the Fed’s lead and this obviously softens the bids in DAX.
Gold drops as the USD shoots higher
Gold took a sizeable hit after Powell said more rate hikes and a higher terminal rate would be likely. Now the market trades again relatively near to the 1804 support but yesterday’s strong down move shows the market was caught off guard. Investors had priced in a 25 bp hike for the first half of the year but now it seems the next hike will 50 bp and there could hikes to come. Therefore, it’s questionable whether the bulls are willing to defend the 1804 level. If they don’t the market is likely to trade down to 1785 or so. If buyers do appear and are able to push the market above 1815 we might see a move to 1823 or so.
The Next Main Risk Events
- EUR ECB President Lagarde Speaks
- USD ADP Non-Farm Employment Change
- CAD BOC Rate Statement
- CAD Overnight Rate
- USD Fed Chair Powell Testifies
- USD JOLTS Job Openings
- USD 10-y Bond Auction
- USD Unemployment Claims
- JPY Monetary Policy Statement
- JPY BOJ Press Conference
- GBP GDP m/m
- CAD Employment Change
- CAD Unemployment Rate
- USD Average Hourly Earnings m/m
- USD Non-Farm Employment Change
- USD Unemployment Rate
For more information and details see the TIOmarkets economic calendar.
Chief Market Analyst
DISCLAIMER TIOmarkets offers exclusively consultancy-free service. The views expressed in this blog are our opinions only and made available purely for educational and marketing purposes and do NOT constitute advice or investment recommendation (and should not be considered as such) and do not in any way constitute an invitation to acquire any financial instrument or product. TIOmarkets and its affiliates and consultants are not liable for any damages that may be caused by individual comments or statements by TIOmarkets analysis and assumes no liability with respect to the completeness and correctness of the content presented. The investor is solely responsible for the risk of his/her investment decisions. The analyzes and comments presented do not include any consideration of your personal investment objectives, financial circumstances or needs. The content has not been prepared in accordance with any legal requirements for financial analysis and must, therefore, be viewed by the reader as marketing information. TIOmarkets prohibits duplication or publication without explicit approval. FX and CFDs are leveraged products. They are not suitable for every investor, as they carry a high risk of losing your capital. Please ensure you fully understand the risks involved. All the prices in this report are CFD prices based on price charts provided by TIOmarkets unless otherwise stated.
Janne Muta holds an M.Sc in finance and has over 20 years experience in analysing and trading the financial markets.
Silver Technical Analysis | XAGUSD Retreats: Key Support Levels to Watch
Silver Technical Analysis – The silver market has been strong until yesterday's reaction lower as strong industrial demand for silver in key sectors such as photovoltaics, electronics, and ...
Nasdaq 100 Technical Analysis | USD Strength Weighs Technology Stocks
Nasdaq 100 Technical Analysis - Yesterday US equities showed some weakness after a month of unusually strong performance. The dip in stocks was attributed to a rise in bond yields which had a...
AUDUSD Technical Analysis | AUDUSD Weakens on RBA's Rate Hold
AUDUSD Technical Analysis – The Reserve Bank of Australia (RBA) left rates untouched today at 4.35% and maintains a data-driven approach to its monetary policy, with a focus on returning infl...
Trade responsibly: CFDs are complex instruments and come with a high risk of losing all your invested capital due to leverage.