- Investors bid prices higher after Powell's Tuesday testimony
- China stocks rose partly on a contradictory narrative
- The slide in US yields continues
Key Events
Futures on the Dow Jones, S&P 500, NASDAQ and Russell 2000 waver while European shares traded slightly higher on Wednesday after markets delivered a strong performance in Asia.
Traders are awaiting the release of US inflation figures due to be published before the start of the New York session later today (8.30 A.M. ET). Today's CPI print could be significant for markets given yesterday's testimony from Federal Reserve Chair, Jerome Powell which reinforced the US central bank's commitment to tightening monetary policy.
Oil continues to move higher.
Global Financial Affairs
Asian shares closed in positive territory, as traders focused on the more tempered aspects of the Fed Chair's testimony at his Senate confirmation hearing yesterday. The regional narrative was encouraged by Powell's optimistic view on the US economy—that it could withstand tightening, and that he expects the supply chain problem that has caused recent inflation to ease in the middle of this year.
Japan's Nikkei tracked the US rally and outperformed, jumping 1.92% in its sharpest daily rally since Dec. 21. China's Shanghai Composite added 0.84% after the country's inflation report sparked speculation that a rate cut was likely to trigger a slowdown in the world's second-largest economy.
As an example of the current, confusing market narrative: though Asian stocks rallied partly because Powell said on Tuesday the American economy was healthy enough to withstand monetary tightening, at the same time indices in China this morning moved higher on expectations of monetary easing there. The two events seem to be discordant.
Unless, of course, the actual reason is that Chinese investors are betting that there will be simultaneous, divergent monetary policies in the two largest global economies. We think that's unlikely.
Powell's comments reinforced the Fed's hawkishness and did not show any signs of backtracking, something we half-expected, when the central bank chair said, "If we have to raise interest rates more over time, we will."
Investors took comfort from his comment that he is "concerned about the market reaction to all of these plans that we have," and interpreted it to mean that the Fed will not act more forcefully than is needed. Also, his view that the supply bottleneck is tempering provided bulls with something to hold onto.
In the US the S&P 500 index ended a five-day decline yesterday to close in the green, almost 1% higher. Surprisingly, the NASDAQ 100 outperformed given that the technology-heavy index is usually the first to suffer from a higher interest rate outlook, and often suffers the most, as that makes its high valuations look stretched.
Treasury yields on the 10-Year note slipped for the third day and fluctuated.
Yields began retreating with a shooting star, having reached the previous highs of March 2020, and the RSI curved down from an overbought condition. Yields and stocks are typically correlated positively. That could be out of whack, given that current movements are on the expectation of higher rates.
The dollar was flat, having rebounded slightly from the bottom of a sideways base, as the price nears its uptrend line, as well as the RSI's rising line.
This greenback may now be an ideal long entry from a risk-reward ratio.
After rallying yesterday, gold retreated from a weekly high.
Technically, the yellow metal shied away from a broken uptrend line.
Bitcoin was higher again after advancing yesterday.
The cryptocurrency is potentially at the top of a bearish pennant after completing a large H&S (and possibly the right side of an even larger Double-Top) as the 50 DMA dives toward the 200 DMA for a Death Cross.
Oil edged higher for a second-day advance, despite Libya restarting production after a blockade there ended. The move will be offset by a slump in production from the east due to bad weather. Oman said that OPEC+'s output increase was the right amount to prevent the market from overheating.
However, as shown via today's small candle, oil may appear to be running out of steam at the top of a possible rising channel—even more so, as some technicians may call it an increasing wedge—as the price nears the October peak. Also, the 50 DMA slumped below its 100 DMA counterpart.
Up Ahead
- US initial jobless claims are printed on Thursday.
- On Thursday, US PPI figures are released.
- Earnings season kicks off on Friday with results from JPMorgan (NYSE:JPM).
Market Moves
Stocks
- The S&P 500 rose 0.9%
- The NASDAQ 100 rose 1.5%
- The Dow Jones Industrial Average rose 0.5%
- The MSCI World index rose 0.9%
Currencies
- The Dollar Index fell 0.3%
- The euro fell 0.04% to $1.1359
- The British pound fell 0.02% to $1.3633
- The Japanese yen rose 0.12% 115.42 per dollar
Bonds
- The yield on 10-year Treasuries declined two basis points to 1.74%
- Germany's 10-year yield was little changed at -0.03%
- Britain's 10-year yield fell two basis points to 1.17%
Commodities
- West Texas Intermediate crude rose 4.2% to $81.48 a barrel
- Gold futures rose 1.3% to $1,822.40 an ounce