Fed President Jerome Powell keeps saying that the Fed’s fight with inflation is not done yet

US equities fell yesterday on the back of two important factors: hawkish comments from the Federal Reserve (Fed) members, and the unexpected surge in the American used car prices.

Hawkish roundup

Fed President Jerome Powell keeps saying that the Fed’s fight with inflation is not done yet, and that the jobs market remains particularly strong. Yes, the ‘disinflation’ mention post-FOMC decision was a bit confusing for investors, but Powell is scared to go too far with the rates. But he is even more scared not to do enough.

Then, Minneapolis Fed President Neel Kashkari said earlier this week that the rates may rise all the way up to 5.4% to slow inflation.

The New Work Fed’s John Williams yesterday pointed at the December’s dot plot and highlighted that a ‘few more 25bp hikes’ is a good road map for those trying to guess where the Fed tightening will end.

Finally, Lisa Cook, who is a member of the Board of Governors of the Fed, confirmed that the Fed is ‘not done yet’.

So, the message is clear. The Fed is not done yet. This means that the rate hikes will continue, and that will continue pressuring the US yields higher as well.

What could ease pressure on yields?

Two things could ease the pressure on the US yields.

• Recession odds. But there has been a clear positive shift in economic projections since the beginning of the year and that throws a floor under the falling yields since last November and tilts the outlook for the US yields to the upside.

• Further slowdown in inflation. If inflation eased further despite a solid jobs market, well that’s a jackpot for the Fed. Being able to bring inflation lower without pushing the economy into recession would be just the best of the best-case scenarios for Powell. However, there is no guarantee for a smooth easing of inflation.

And the sudden jump in used car prices since the end of last year, which has accelerated in January, is a concern for inflation watchers, because used-car prices has been one of the key boosters of inflation over the past years, and seeing it rebound gives chills for those who are praying for a further easing in inflation figures, due next week.

Oops, Google

Google had a particularly rough day, to say the least. The company posted a Tweet showing Bard in action.

The stock price slumped by more than 9% at some point, tipped a toe below the $100 psychological mark and ended the session more than 7% lower, just at $100 per share, on worries that Google is not keeping up with Microsoft’s ChatGPT on the AI race. 

Microsoft on the other hand was upbeat on the news, and its valuation shortly surpassed the $2 trillion mark. But Google’s AI disaster didn’t help Microsoft to fully reverse the selling pressure. The stock still closed the session a couple of points lower, but with the comfort that Google is certainly not closely behind its buzzy ChatGPT! 

Elsewhere, Uber jumped more than 5.5% on stronger than expected results. Disney also jumped by more than 5% in the afterhours, after reporting better than expected results, and the promise to slash $5.5 billion in costs, along with 7000 jobs.

The US futures are in the positive at the time I am talking here, but the bears are not far away.

In the FX

The US dollar remains upbeat, but the 50-DMA offers remain a solid resistance to a bullish breakout. Likewise, the EURUSD remains bid at around the 50-DMA, and the dollar-yen remains offered into the 50-DMA. So that 50-DMA mark is the key resistance that must be cleared to set the dollar bulls free for further appreciation, and de-block the situation in the FX space.

In energy, US crude extended gains above its own 50-DMA yesterday. The 2.4-mio-barrel build in US inventories last week strengthened the bulls’ hands. Now let’s see how far the rally could stretch. The next big challenge is the 100-DMA-, which stands a touch above the $81pb level, and which has not been cleared since last summer.