March 18, 2018

Asian stocks fall as traders await Powell hearing

03 March 2018, 05:04 | Kenneth Drake

Jay Powell Is Janet Yellen's Trap Queen

Dollar finds a friend in Powell as global stocks slip

Yesterday, Powell delivered his semiannual monetary policy report before the House, which was interpreted by some analysts as a bit more hawkish than former Fed Chair Janet Yellen.

As Powell addressed the House Financial Services Committee, not only traders, but all those following our nation's economic state, were again on high alert, hanging on Powell's every word to see if he would provide a hint concerning the Fed's plans to raise interest rates during the coming year. "His performance seems comfortable and confident for markets".

USA stock-market indexes switched between gains and losses on Thursday, after Federal Reserve chief Jerome Powell said he saw no signs of significant wage inflation as he testified before a Senate committee. The S&P 500 dropped 30 points, or 1.11% to 2,713, and the Nasdaq lost 57 points, or 0.78% to 7,273. At the December meeting, the central bank projected that it would raise rates another three times this year.

Asian stocks skidded on Thursday after Powell's comments rekindled fears about the pace of USA monetary tightening this year. In prepared congressional testimony, Powell emphasized that the job market remains robust, consumer spending is solid and wage growth is accelerating.

Despite the general assumption that the Fed would continue in a similar fashion under Powell, market watchers have cited change atop the central bank as a risk factor.

Gold prices tumbled by Rs 460 to Rs 31,390 per 10 grams at the bullion market on Wednesday, snapping its four-day rising streak due to subdued global cues amid slump in local jewellers' demand.

Stocks had mostly traded lower before Trump's announcement.

U.S. stocks plunged and Treasuries climbed Thursday after U.S. President Donald Trump promised to impose substantial tariffs on foreign metals, drawing a rebuke from a manufacturing industry group and the European Commission. We discuss that and much more as we parse the Powell testimony, and share our views on what's really going on when viewed through the lens of thematic investing.

"While the challenges we face are always evolving, the Fed's approach will remain the same", Powell said.

Inflation has been running below the 2 percent level the Fed believes is best for the economy.

"The message of the testimony is that Powell is less inclined to let the economy run hot", said Robert Phipps, director at Per Stirling Capital Management in Austin, Texas.

"You have a generation of brokers and advisers who have not experienced this side of the economic cycle", he said. "He understands the risk of inflation getting out of hand". "Now, however, it appears that bond yields have risen sufficiently high to allow them to provide a buffer on bad days for stocks". He cautioned against using just history - that is, the traditional signal of a future economic slowdown - to interpret the implications of the recent flattening of the yield curve. What's more, even as the 1-year Treasury yield increased in response to Chairman Powell's remarks, long-term interest rates sank, flattening the yield curve.

Economists polled by Reuters expect the core PCE to increase 1.5 percent year-on-year in January, which would be the same as December's pace and still some way off from the Fed's 2 percent target. Governor of the Bank of England Mark Carney will also be speaking on Friday morning, with investors continuing to ramp up their expectations for the pace of interest rate hikes from the United Kingdom central bank in 2018.

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