Trading Insights: Resilient economy - Powell opened the door for 6% rates or even higher
Market Talk
Powell rocks markets during scheduled testimony to US congress
Commentary:
- The US created 500,000 new jobs in January, higher wages (people getting paid more) adds to higher inflation pressure
- The US Fed’s job is to keep price stability while maximizing the employment rate
- The Fed has been successful in achieving its maximum employment objective since US unemployment is at a 53 year low
Bottom line: The Fed needs to pick up the pace and raise interest rates in order to “cool” the economy. The US economy is healthy enough to handle even higher interest rates. The US economy can handle higher unemployment, even if unemployment moves 1%-3% higher the unemployment rate will still remain near historic lows.
Markets do not move in straight lines, successful traders are able to discover trading opportunities by reading through the “headlines”.
Good luck!
The chart illustrates the US stock market reaction to Fed Chairman Powell's testimony yesterday
US stock markets sold off yesterday after US Fed Chairman Powell said that
"inflation running higher than expected and the peak in the Fed funds rate is "likely" to be higher than previously thought"
Even after yesterday’s “shock” “sell-off” of US stock markets, the S&P 500 Index remains positive for the previous 5 days
Most global stock indices remain positive for 2023
Today’s Economic Events
Canada rate decision
- Bank of Canada (BoC) is expected to hold rates at 4.5%, however, they are expected to hint that they will leave the door open for further hikes during 2023
- The recent weakness in the CAD could trigger a spike in market volatility if the BoC appears to be more “hawkish” in today's BoC announcement
| Time: GMT+0 | Country/Region | Economic Indicator | Previous | Forecast |
|---|---|---|---|---|
| 7:00:00 AM | German | Industrial Production m/m | -3.1 | 1.4% |
| 10:00:00 AM | EU | GDP final y/y | 1.9% | 1.9% |
| 1:30:00 PM | US | Trade Balance | -67.4B | -69B |
| 3:00 PM | Canada | BoC Interest Rate Decision | 4.50% | 4.50% |
| 3:00 PM | US | Fed Chair Powell Testimony | - | - |
| 3:00 PM | US | JOLTs Job Openings JAN | 11.012M | 10.6M |
| 3:30:00 PM | US | Crude Oil Inventories | 1.66M | 395K |
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Cross asset bullet points:
- Gold price remains bearish and the strong sell-off yesterday seem to support the current downtrend theme. The sell-off could confirm that the recent February 27th - March 6th “corrective” move higher is over and that the prevailing downtrend may continue provided the price falls below the bear market trigger spotted at $1,804
- USD/CAD crosses above key resistance at 1.3705 triggering the potential start of a medium term (26-49 days) bull market cycle. Downside risk near 1.3485, upside prospects at 1.3795-1.38 and 1.3880 further out
- Eurostoxx 50 index bullish trend remains intact since current price remains above the key support at 4,190. Upside prospects above 4,303 places the November 18th 2021 highs in sight at 4,410
- Brent crude oil seems unable to hold onto recent gains, resistance remains at $89, while the downside support zone is spotted between the $77.60s - $73.50s.
Not investment advice. Past performance does not guarantee or predict future performance.
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