Powell comes out swinging
This Daily Digest will cover:
- 🎙 Jerome Powell comes out swinging
- 📊 Stocks and risk assets sink, USD flys
- 🗂 Round 2 today plus tier 2 employment data
Well one thing is clear, Powell has been spooked by the recent inflation bounce!
His testimony yesterday was in stark contrast to the last time he spoke (pre hot inflation data) as he abandoned all talk of the start of the disinflationary process and instead talked about possible bigger hikes and a higher terminal rate. The market reaction was swift and vicious with GBP trading from 1.2000 to near 1.1800, Euro down to 1.0525 and USD/Yen vaulting 136 and 137 to almost touch 138. Stocks sank and 2 year yields surpassed 5 percent with the curve inverting heavily as the market prices in a forced recession.
Crypto, whilst lower as BTC broke its 22,000 support, has thus far been muted in a further sign that the topside will attract momentum players far more than sell offs (a stark difference to 2022!).
We get round 2 from Powell today and it will be interesting to see if he reiterates his stance or dials it back a little as the market surely got a touch carried away. I wrote yesterday that data matters more than his words and whilst the market disagrees, the fact we are getting flip flop messaging shows that the FED are reacting to the numbers just as much as we are and a weak payrolls report will change the narrative again. I think the bar is high for him to extend the moves of yesterday and risk reward favours fading these extremes into his speech and in fact into the payrolls on Friday should we sustain or extend from here.
We get 2 sets of jobs data today to dissect ahead of the main event with ADP employment and JOLTS which have been closely watched recently. Strength here could see expectations ratchet up a notch for NFP and me abandon all plans to fade this move I wrote earlier about Crypto hanging in despite breaking the short term support. Chart of the day is an update from yesterday’s BTC/USD chart. I never rely solely on charts but I never ignore them either. The lack of momentum makes me want to go long, the chart break tells me to be patient and buy above 22,500 or wait for nearer 20,700…
As always, good luck out there.
