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Funda and political wrap: Powell sends dollar and rates higher, option interest capping majors prior advances

After a pretty tame fx space overnight where decent size option expiries kept a lid on some of the majors again such GBP/USD, EUR/USD, USD/JPY and AUD/USD in European and the Asian session, the main focus for today was with fed's gov. Powell who was testifying to Congress in the NY morning. 

As a consequence of his text and live testimony answering the typical types of questions around the economy and monetary policy in general, the dollar rallied on his optimism and due to market speculation that the fed will indeed be looking to raise rates at a faster pace in the medium term. 

DXY was bid between a range of 89.693 - 90.498 while us 10-yr yields spiked to 2.92% from a low of 2.8460%. Stocks subsequently fell to their 50-hr SMAs...and some.

From a funda and political take leading into the NY session as well, here are some of the key bullet takeaways by category:

Brexit:

  • EU Brexit head Barnier speaking to reporters 27 Feb:
  • Barnier: not possible to extend Brexit transition period beyond 2020.
  • Barnier: says there are significant differences on Brexit transition deal.
  • Barnier: UK needs to produce Brexit withdrawal text on table ASPA.
  • UK formin Johnson tells PM: Wrong to see govt task as 'no Irish border' after Brexit – Sky.
  • Government's task after Brexit will be to stop the Irish border becoming ‘significantly harder’.
  • ‘Wrong’ to see the government's task as maintaining ‘no border’ in Ireland after Brexit.
  • Irish dup party: Sees EU’s proposals on border as ‘unacceptable’.
  • Brexit draft text: North may be considered part of EU customs territory post-Brexit – via RTE.

White House:

  • US Pres. Trump still supports raising the age limit to 21 for certain firearms - RTRS.
  • Reports US pres. Trump met with 4 senators; discussed relief for oil refiners.
  • US Tsy Sec. Mnuchin: has had high-level discussions with int’l counterparts about rejoining TPP - @Arappeport.
  • US Tsy Sec. Mnuchin: wants to avoid trade war with China.

Fed:

Dallas Fed backed discount rate hike ahead of January policy meeting.

Fed's Powell:

  • Fed's Powell: Nearing full employment.
  • Fed's Powell: Given jobless levels, would have expected more wage increases.
  • Fed's Powell: Would have high bar for changing b/sheet policy which is ‘working well’.
  • Fed's Powell: Yield curve has been a problem in past when fed was behind and had to hike rates quickly.
  • Fed's Powell: Says this ‘is not the case now’.
  • Fed's Powell: Economic risks are ‘looking two-sided’ right now.
  • Fed's Powell: If fed gets behind, economy overheats, fed ‘will have to hike rates faster’.
  • Fed's Powell: Stock market is not the US economy, but plays a factor in it.
  • Fed's Powell: Not on a sustainable fiscal path.
  • Fed's Powell: Moving in the ‘right direction’ with b/sheet runoff.
  • Fed's Powell: Part of workforce growth is due to immigration.
  • Fed's Powell: productivity is the only sustainable way to boost wages.
  • Fed's Powell: taking ‘fresh look’ at Volcker rule.
  • Fed's Powell: wouldn’t change rotation structure of FOMC.
  • Fed's Powell says he expects ‘meaningful increase’ to demand in next couple of years due to recent fiscal changes.
  • Fed's Powell: Strongly committed to inflation target.
  • Fed's Powell: Expects more normal balance sheet level in 3-5 years.
  • Fed's Powell: Would love to reach 7 board members.
  • Fed's Powell: Initial leverage rule is ‘a little too far’.
  • Fed's Powell: Would like to tweak supplementary leverage ratio to help custody banks.
  • Fed's Powell: Economy looks quite strong in next couple of years.
  • Fed's Powell: Focused on the enhanced supplemental leverage ratio.
  • Fed's Powell: LIBOR reform is a ‘top priority’.
  • Fed's Powell: Seen gradual recovery in housing market.
  • Fed's Powell: Committed to being ‘as transparent as possible’.
  • Fed's Powell: Mkts must be ready for end of LIBOR, failure to act on LIBOR could be quite high.
  • Fed’s Powell: Fed focuses on participation rate ‘all the time’.
  • Fed’s Powell: No Fed forecast on how much of tax cut will go to wages, buybacks.
  • Fed’s Powell: Fed focuses on participation rate ‘all the time’.
  • Fed’s Powell: No Fed forecast on how much of tax cut will go to wages, buybacks.

Fed Powell's Text:

  • Fed Powell's congressional testimony.
  • Gradual reduction of monpol will sustain strong labor market while fostering a return of inflation to 2 percent.
  • Median FOMC “dot plot” sees year-end federal funds rate rising gradually over the 2018-2020 period. Median projection for end of 2018, 2.13%.
  • Upbeat growth will likely continue to boost business investment, economic outlook remains strong.
  • Moderate wage gains likely reflect the offsetting influences of a tightening labor market and persistently weak productivity growth.
  • Medium-term inflation on a 12-month basis to move higher and stabilize around FOMC´s 2 pct target over.
  • Fomc views some of the inflation shortfall over last year as reflecting transitory influences.
  • Month-on-month prices data a little higher toward the end of the year than in earlier months.
  • Econ activity abroad has been solid in recent quarters and associated strengthening of demand for U.S. exports.
  • Inflation remains below the 2% longer-run objective.
  • Anticipate that inflation on a 12-month basis will move up this year and stabilize around the FOMC’s 2 percent objective over the medium term.
  • Continue to view some of the shortfalls in inflation last year as likely reflecting transitory influences that we do not expect will repeat.
  • Continue to monitor inflation developments closely.
  • Fiscal policy is becoming more stimulative.
  • Wages should increase at a faster pace as well.
  • Robust job market should continue to support growth in household incomes and consumer spending.
  • Labour force participation rate remained roughly unchanged - a sign of job market strength.
  • The housing market has continued to improve slowly.

US data:

  • US Richmond fed manufacturing index Feb: 28 (est 15; prev 14).
  • US durable goods orders Jan: -3.7% (est -2.0%; prev r 2.6%).
  • US Jan durable goods orders down 3.7pct m/m vs est minus 2.5pct and prev (r) up 2.6pct.
  • US Jan ex-transportation durable goods down 0.3pct m/m vs est up 0.5pct and prev up 0.7pct.
  • US Jan core durable goods down 0.2pct m/m vs est up 0.6pct and prev (r) minus 0.6pct.
  • Richmond Fed manufacturing index for February 28 vs. 15 expected.
  • US advanced goods trade balance -74.4b vs -72.3b expected.
  • The Atlanta Fed GDP now estimate for first-quarter growth came in lower at 2.6% versus 3.2% last.
  • Atlanta Fed GDP now estimate for 1q growth comes in at 2.6% vs 3.2% last.
     

Author

Ross J Burland

Ross J Burland, born in England, UK, is a sportsman at heart. He played Rugby and Judo for his county, Kent and the South East of England Rugby team.

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