Investors turn their attention to Jerome Powell's first testimony

It's shaping up to be another relatively flat day in the markets as investors turn their attention to Capitol Hill ahead of Jerome Powell's first testimony.

The Fed Chair will appear before the Senate Banking Committee later today to testify on the semi-annual monetary policy report. These events naturally attract a lot of attention but the reality is the Chair's performance is usually quite polished and uncontroversial, and the occasion itself can drag on and frequently venture away from topic. In other words, we shouldn't assume we're about to get fireworks from Powell.

What may make this occasion different is the fact that there's so much uncertainty around the outlook for interest rates and inflation. While the Fed has maintained that rate hikes must continue, the economic data from January has forced markets to adjust to that reality too so there's every chance we get a hawkish offensive from Powell.

Considering the likelihood of the January data being a blip rather than a trend, I think it would probably be wiser for Powell to maintain his previous tone as he may risk spooking the markets but if the FOMC truly is weighing up a 50 basis point hike this month, this would be a good opportunity to lay the groundwork for it.

Nearing the end

The RBA appeared to soften its tone once more after hiking rates by another 25 basis points today. The central bank is now of the opinion that inflation has peaked and so multiple rate hikes may no longer be the base case. That said, the RBA will decide meeting by meeting and a lot can change in between. Markets are now pricing in at least one more hike in the cycle and maybe two. The Australian dollar is a little lower on the day as the decision was perceived to be a dovish hike.

Some promising signs

Chinese trade data highlighted some modest improvements but remain quite weak overall. The drop in imports can possibly be attributed to some one-off factors including Covid exit waves and the Lunar New Year and the data will surely improve over the coming months as the economy returns to normal. Exports remained under pressure, although the number was better than expected, indicating still soft global demand which aligns with what we've seen recently elsewhere.

Pushing the highs

Oil prices rebounded again on Monday, the second day in a row that they've reversed sizeable early losses to end the day in positive territory. They're now on a good run and traders were clearly not deterred by China's modest growth target for long. Against that backdrop, it may well be the case that Brent and WTI are about to test the upper end of their trading ranges that they've remained within since early December.

A break above $89 would be a very bullish signal for Brent while the same would be true of $83 in WTI. Whether they have the momentum to pull that off may well depend on Powell's dual testimonies and/or Friday's jobs data.

Tentatively higher

Gold is edging tentatively higher ahead of Powell's testimony, during which conditions could become much more volatile. The yellow metal has run into resistance around $1,860 this week which was always likely to be the first test to the upside. Above here, $1,890-$1,900 will be a big test, should it get that far.

Of course, all of this may simply depend on what Powell has to say. A hawkish testimony could wipe out any bullish momentum built up over the last week, at which point attention will shift back to the lows around $1,780-$1,800.

Hanging on in there

Bitcoin has been in consolidation since Friday's sell-off with traders seemingly fearful of further ripple effects but still willing to hang on for now just in case. It's been a fantastic year for crypto so far but events late last week were a quick reminder of the challenges facing the industry in the short term and the consequences of that. There'll also be an eye on Powell's testimony today as it may influence overall risk appetite in the markets.