Stocks near 3-Week Highs ahead of Powell’s first speech

Daily Analysis - 27/02/2018

All eyes on Jerome Powell

Jerome’s Powell first appearance as the new Fed chair steals the spotlights as the Global markets continue the recovery. Among the commodities, oil prices climb to 3-week highs.

Major Events Investors will Focus on Today

In the US, Jerome Powell will make his first appearance as the Fed Chairman since he took over from Janet Yellen earlier this month. He testifies before Congress and his speech will focus on the Fed’s Semi-Annual Monetary Policy Report and the state of the economy, where he will face questions from both houses of the Congress. Powell returns on Thursday, March 1^st before a Senate committee.

His testimony comes at a time when investors have been nervous about the pace of the future rate hikes, which have weighed on equity markets globally. Investors are anticipating that Powell will keep the U.S. central bank on a steady course of monetary tightening.

At the latest FOMC policy meeting and the last chaired by Janet Yellen, the FOMC left the door wide open for an interest rate hike in next month’s meeting in March 20-21. Economic data such as the wage increase and the tight labor market raised speculation for a fourth hike within this year instead of three as previously thought in December. The probability for a hike at the upcoming gathering currently rests near 83%, while the forth hike in December currently gathers a probability around 22%.

The Fed said on last Friday it expected economic growth to remain steady and saw no serious risks on the horizon that might pause its planned pace of rate hikes.

Having all these in mind, market participants will be eager to hear Powell’s view on the economy and inflation in order to assess whether the likelihood for a March hike is as elevated as the market implies, and how likely is for the Committee to revise up its future hike path when it meets next.

“Buy the Dip” scenario is back

Global stocks climbed near three-week highs on Tuesday ahead of Federal Reserve Chairman Jerome Powell’s awaited first congressional testimony later in the day. Investors are looking for more clues on interest rate hikes as he might use the occasion to drop hints that a further rate increase is coming at next month’s meeting.

Gains in technology shares and Warren Buffett’s Berkshire Hathaway were the main drivers of gains on Monday’s session in Wall Street. The heavy-tech index NASDAQ stands 0.1% higher for February, while the Dow Jones Industrial Average and S&P 500 are 1.5% lower. The Dow and S&P 500 have retreated and have covered more than the correction losses; both are currently just 3% lower from their all-time highs marked in January.

The Nasdaq composite is back at the levels prior to the huge sell-off, and climbed 1.15% mainly due to a nearly 2% rally in Apple shares and a 2.8% gain in Intel.

The Dow Jones industrial average closed nearly 400 points higher on Monday with industrial giants Boeing and 3M contributing the most to the blue-chip index. The S&P 500 also gained roughly 1.2% mainly due to a strong performance in telecommunications, technology and financial sectors.

Over the past two weeks, the Dow Jones industrial average surged more than 1,100 points. Quite fascinating, the so-called "FAANG" stocks — including Facebook, Apple, Amazon, Netflix, and Google — have already returned to pre-correction levels.

Concerns around the future of the U.S. economy and monetary policy in the States keep investors on edge.

Main Events Investors Focus for the Day

Even though today’s highlight is on Jerome’s Powell testimony as his first official appearance the markets could be vulnerable on today’s data releases as they could derail the plans of the monetary policymakers in the Euro-zone and the U.S.. Powell’s debut appearance is considered critical for financial markets at a time when a lot of investors are nervous about the Fed’s policy normalization following years of stimulus after the financial crisis about a decade ago.

Today, during the European morning session, Germany reports preliminary CPI data for February. Expectations are for consumer prices in Eurozone’s biggest economy to have climbed, to +0.5% month-over-month from -0.7% in January. This could serve as a leading indicator for the bloc’s headline CPI rate for the month, due out on Wednesday which could potentially move in a similar fashion.

As for the US economic indicators, core durable goods orders for January are coming out expected to slide back to 0.4% from the previous reading that came out to 0.7%. Report on CB consumer confidence is also due which measures the level of consumer confidence in economic activity. The consensus is the data to be reported at 126.6.

Oil prices are trading near their three-week highs, mainly supported by signs of stronger demand, production cuts led by OPEC and Russia as well as a slight fall in U.S. output.