All eyes on Powell

The week started with worries that China setting its growth target to 5%, a meagre target for a post-pandemic kick-off, could mean a slower global growth ahead.  

Today, the latest, and mixed trade figures further raised a couple of eyebrows regarding whether we are expecting too much from China. The decline in Chinese exports was less dramatic than expected, but imports fell more than 10% in February from a year ago.   

 Nasdaq’s Golden China Dragon index kicked off the week down, while the S&P500 was better bid at the open, with gains up to 1%. But the gains melted to the close and all three major US indices closed Monday’s session flat to very slightly positive. Still the S&P500 is heading to Powell’s semi-annual testimony above the 4000 mark.  

Today, all eyes and all ears are on  Federal Reserve (Fed) Chair Jerome Powell and what he thinks about the latest set of economic data.  

Since the latest FOMC meeting, we saw a blowout NFP number, an uptick in inflation figures, lower-than-expected decline in the S&P500 earnings, and overall encouraging economic activity data.  

And that’s a problem. The fact that the US jobs market, or economic activity don’t react to higher Fed rates is a problem for Fed, because it makes the Fed’s arms less efficient for fighting against inflation. Many would argue that changes in rates take time to filter into the economy but the Fed’s tightening campaign began in November 2021 - 17 months ago, the rate hikes began roughly a year ago. It’s about time we start seeing the impact of higher rates through data.  

Alas, half-a-million NFP read, with the lowest unemployment rate of the past half a decade and uptick in inflation are indeed worrying. 

US Crude above 100-DMA 

Disenchanting growth target from China was expected to keep the oil bears in charge of the market, but the 100-DMA got surprisingly cleared to the upside yesterday.  

Warning of tight global supply and rising Chinese demand from CERAWeek conference and Estonian foreign minister’s idea that the EU should halve the Russian oil cap helped pushing the price of a barrel above the critical 100-DMA level.  

Tight global supply, war, sanctions on Russia oil and the rising Chinese and global demand tilt the balance for higher oil prices in the medium run. But higher energy prices mean higher inflation, and higher inflation means tighter monetary policies which, in return, increase the global recession odds, and could weigh on oil prices.  

Elsewhere 

The Reserve Bank of Australia (RBA) raised the rates by 25bp as expected and said that there could be more rate hikes on the pipeline depending on the data, but the AUDUSD slipped below 67 cents.  

The EURUSD extended gains and flirted with the 1.07 mark yesterday on the back of a surprisingly softer US dollar into Powell’s testimony.  

Gold sold off into the $1860 mark.  

Hawkish Powell could reverse losses in the dollar later today.