Marketmind: Powell's state of the union
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[February 07, 2023] A
look at the day ahead in U.S. and global markets from Mike Dolan.
While U.S. President Joe Biden gets set to deliver his second "State of
the Union" address late on Tuesday, world markets will be more in thrall
to what his Federal Reserve Chair makes of an increasingly confusing
economic picture.
Jerome Powell makes his first speech since the Fed's latest
quarter-point interest rate rise last week. More importantly, it's his
first chance to comment on Friday's seemingly blockbuster U.S.
employment report for January.
For markets that appeared comfortable as recently as Thursday that the
Fed was signalling peak interest rates ahead and open to easing after
that, the jobs report was a huge shock that's prompted dramatic
re-pricing of the interest rate space.
Futures markets now tally with many Fed policymakers for the first time
this year and seem to accept the Fed's 'terminal rate' will be above 5%
after all. Perhaps just as significantly, they now price year-end Fed
rates higher than the 4.5-4.75% range they are at right now.
Adding to the confusion are some doubts about just how strong the jobs
report was relative to an assumed picture of a tight but gradually
weakening labor market - mainly because of potentially misleading data
revisions and seasonal adjustments.
But Powell's colleagues are already beating the drum louder. Atlanta
Federal Reserve Bank President Raphael Bostic on Monday said of the jobs
readout: "It'll probably mean we have to do a little more work."
Ahead of Powell's speech at 1240 EST, world stocks and U.S. futures
steadied on Tuesday after a rough start to the week and U.S. Treasury
yields gave back a little of their wild upswing since the payrolls
surprise. The dollar took a breather after its near 3% surge from
Thursday's lows.
The Fed was not alone in talking tough. Australia's central bank raised
its cash rate 25 basis points to a decade-high of 3.35% on Tuesday and
reiterated that further increases would be needed, a more hawkish policy
tilt than many had expected.
Investors will watch Biden's State of the Union with one eye on the
potentially destabilising debt ceiling standoff with Congress. Biden is
expected to insist that raising the debt limit is not negotiable and
U.S. lawmakers should not use it as a "bargaining chip,"
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U.S. Federal Reserve Chair Jerome Powell
addresses reporters after the Fed raised its target interest rate by
a quarter of a percentage point, during a news conference at the
Federal Reserve Building in Washington, U.S., February 1, 2023.
REUTERS/Jonathan Ernst/File Photo
Republican U.S. House Speaker Kevin McCarthy called on Biden to
agree to compromises and spending cuts, as the two remain deadlocked
over raising the nation's $31.4 trillion debt ceiling.
In corporate news, shares in BP jumped almost 4% after posting a
record profit of $27.6 billion in 2022 and boosting its dividend by
10%. BP's record profit follows similar reports from rivals Shell,
Exxon Mobil and Chevron last week.
Other big movers in Europe included a 17% slide in Nordic
Semiconductor after it missed fourth-quarter earnings estimates and
a 15% slump in ams OSRAM after the sensor maker reported a weak
first-quarter outlook and suspended its 2022 cash dividend.
Key developments that may provide direction to U.S. markets later on
Tuesday:
* U.S. Dec trade balance, Dec consumer credit; Canada Dec trade
* Federal Reserve Chair Jerome Powell, Fed Vice Chair for
Supervision Michael Barr, Bank of Canada chief Tiff Macklem all
speak
* U.S. Treasury auctions 3-year notes
* U.S. President Joe Biden delivers State of the Union speech
* U.S. corp earnings: DuPont de Nemours, Prudential Financial,
Omnicom, Enphase Energy, Atmos Energy, Amcor, KKR, Chipotle, Lumen
Technologies, Centene, Vertex Pharmaceuticals, Royal Caribbean
Cruises, FMC, Fiserv, Gartner, Carrier Global etc
(By Mike Dolan, editing by Christina Fincher mike.dolan@thomsonreuters.com.
Twitter: @reutersMikeD)
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