Powell back in focus while the BoC keep rates steady

Central banks continue to dominate, with Powell struggling to contain the impact of yesterday’s appearance and the BoC opting to shift to a neutral monetary policy stance, says Joshua Mahony, senior market analyst at online trading platform IG.

Stocks stabilise as Powell seeks to ease fears

“Jerome Powell has once again grabbed the limelight, as the Federal Reserve Governor sought to limit the losses associated with yesterday’s hawkish comments in Washington. As if often the case, the second day of testimony from Powell provided a chance to fine-tune market expectations after an initial appearance which drew equity bulls back into their shells. The recent stutter in US inflation has undoubtedly raised concern amongst equity bulls, although record highs for the FTSE 100 and CAC signal a recent willingness to overlook that risk in Europe. Powell has done a good job of waking up markets to the very real risk that rates end up higher for longer in a bid to drive down inflation. While we have seen stocks stabilise somewhat today, the data-dependant nature of the Fed could mean a 50-basis point hike if inflation fails to head lower next week.”

Bank of Canada provides respite from hawkish Fed rhetoric

“In the midst of a Fed-focused market freak-out, the Bank of Canada provided a more upbeat assessment of inflation as they opted to draw their tightening phase to an end. The widely expected freeze to interest rates came with a hope that inflation will allow them to maintain this neutral stance. Ultimately, we do continue to see plenty of strength in the Canadian jobs market, and this outlook does remain dependant on inflation continuing its downward trajectory in the face of economic strength. With wage growth of 3.4% compared with the likes of the US (7.8%) and UK (5.9%), perhaps todays BoC outlook is all part of a plan to keep inflation expectations low to avoid an inflationary spiral.”