- Fed's Powell: We didn't expect the jobs report to be this strong
- BOC Macklem: More rates hikes will not be needed if inflation falls/econ develops as exp.
- ECBs Schnabel:Inflation slowing not yet linked to ECB policy.The decline is due to energy.
- US consumer credit for December was $11.56 billion versus $25 billion estimate
- BOC's Macklem: If inflation follows our forecasts, we probably won't have to raise rates
- U.S. Treasury sells $40 billion a three year notes at a high yield of 4.073%
- ECB's Nagel: It would be dangerous to think inflation problem is solved
- US used vehicle prices rose in January
- US international trade balance for December -$67.4B vs -$68.58B estimate
- Canada December trade balance -$0.16B vs -$0.5B expected
Markets:
- Gold up $2.50 to $1869
- WTI crude oil up $3.21 to $77.32
- US 10-year yields up 4.4 bps to 3.78%
- S&P 500 up 53 points, or 1.3%, to 4164
- JPY leads, EUR lags
The market was in wait-and-see mode ahead of the appearance from Fed Chair Powell and anxious that he would offer up something more-hawkish than at the FOMC meeting. Instead, he initially reiterated his stance and that led to a sharp drop in the US dollar. About 30 minutes into his appearance, he offered something different, saying the Fed could more if the data stays hot. That led to a total reversal of the move.
But that wasn't the end of it. A fresh rally in risk assets and selloff in the dollar started shortly after with tech and energy leading the way. That ultimately accelerated into the close with the US dollar falling once again, despite Treasury yields finishing near the highs.
For my part, there wasn't much new or novel from Powell so it's a matter of the market managing where interest rates will land. The market now appears to be comfortable with 5-5.25% so long as the economy stays strong. The fear is 6% rates and the sense right now is that the Fed doesn't think it will be necessary but that could change after the upcoming CPI report.
In terms of notable market moves, USD/JPY crashed back down to take a bite out of yesterday's rally. It fell as low as 130.49 before bouncing 60 pips late.
Cable was particularly volatile as it bounced around in the 1.2000 to 1.2100 range as Powell was speaking. The euro tried to form a bottom with the help of some buying at the London fix but the pair traded with a 1.06-handle today for the first time in a month.
The commodity currencies tracked the risk trade but the loonie was a modest outperformer despite the oil jump. Perhaps that's a reflection of oil range trading in the bigger picture and the BOC clearly on the sidelines while the RBA today forecast more hikes ahead.
