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Marketmind: No time to waver, Chair Powell

EconomyJan 26, 2022 02:44
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© Reuters. FILE PHOTO: Federal Reserve Chair Jerome Powell pauses while testifying before a Senate Banking Committee hybrid hearing on oversight of the Treasury Department and the Federal Reserve on Capitol Hill in Washington, U.S., November 30, 2021. REUTERS/Elizab

A look at the day ahead from Dhara Ranasinghe.

Some previous market tantrums over a looming tightening in policy made central bankers think twice about taking away hefty monetary support. Yet, for the Federal Reserve, concluding a two-day meeting later on Wednesday, things are now different.

With inflation raging at 40-year highs, the Fed is unlikely to backtrack on its intent to raise interest rates and will almost certainly flag a March rate hike later on Wednesday.

Yet, the almost 9% slide in the S&P 500 this month and the flattening of the U.S. yield curve are not good indicators of sentiment towards the economic outlook, and may temper the case for more hawkish stance from the Fed.

The fine line between taking action to contain inflation but not tightening policy too fast that it brings the recovery to a quick end, is exactly the line Fed chief Jerome Powell has to walk. Markets will be watching his every step.

Meanwhile, odds are split on whether or not the Bank of Canada will hike rates for the first time since 2018 when it meets later in the day. The bank may need to take Omicron's wrath into account while deciding whether to start a tightening campaign geared at taming red-hot inflation.

With central banks in the spotlight, Asian stock markets steadied after three sessions of losses. U.S. and European stock futures were higher.

Geopolitical tensions were likely to remain in focus after U.S. President Joe Biden said he would consider personal sanctions on President Vladimir Putin if Russia invades Ukraine, as Western leaders stepped up military preparations and made plans to shield Europe from a potential energy supply shock.

Key developments that should provide more direction to markets on Wednesday:

- Microsoft (NASDAQ:MSFT) offers strong forecast, lifting shares

Fed meeting

- Debt-laden China Evergrande to hold investor call on Wednesday - sources

- Fed policy decision due at 1900 GMT

- Bank of Canada meeting

- US goods trade balance/inventories/new house sales

- US 2 year FRN sale

- UK linker sale

- US earnings: Boeing (NYSE:BA), AT&T (NYSE:T), Nasdaq, Kimberly Clark, Intel (NASDAQ:INTC), Tesla (NASDAQ:TSLA), Whirlpool (NYSE:WHR)

- European earnings: Essity, Sage Group (LON:SGE), Barry Callebaut Main Fed, ECB, BOJ rates

Marketmind: No time to waver, Chair Powell

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