Published On: Wed, Feb 28th, 2018

Markets Take A Tumble As Rate Hike Expectations Rise

US Futures Pare Gains as Powell Speech Triggers Another Dip in Stocks

US futures are trading slightly in the green on Wednesday, paring losses incurred on Tuesday following the hawkish testimony of new Federal Reserve Chairman Jerome Powell.

Powell’s testimony to the House Financial Services Committee was the first of two this week, with the second being in front of the on Thursday. The new Fed Chair was very optimistic on the economy and even opened the door to upgrades to economic forecasts next month and , which lifted the and US yields, particularly on the short end of the curve.

The are already relatively well positioned for rate hikes, if the Fed proceeds as planned, but there’s still some catching up that will need to happen if four increases materialize. The prospect of faster rate hikes in the near-term has been damaging for stock recently and explains why once again US indices shed more than 1% on Tuesday. This negative view of higher rates fed through to Asian and European stock also, both of which are decidedly in negative territory.

Sterling Dips After Release of Draft EU Brexit Treaty

The EU released its draft Brexit treaty this morning and despite containing no language that hadn’t already been anticipated, it did weigh on the in the immediate aftermath, with the cable dropping around 40 pips against the and the dollar. While this isn’t too significant a move, it does highlight the ongoing sensitivity of the pound to the Brexit talks and the transition period, even when what we’re seeing and hearing isn’t new news.

GBP/USD Daily Chart

GBP/USD Daily Chart

GBP/USD Daily Chart

The pound has performed well since late last year when both sides agreed to progress to phase two of negotiations, but as recent commentary – including Michel Barnier’s warnings today – indicates, some significant differences still exist and tough negotiations lie ahead. This could leave the pound vulnerable as the deadlines approach, the first of which will be that on transitional arrangements.

US GDP Eyed But Attention on Tomorrow’s Testimony

Once again today there’s plenty of economic data being released that will be of interest to traders. The disappointing PMIs from China overnight didn’t help lift the sombre mood in Asian trade, with the being particularly weak and falling at its sharpest rate since 2011, although this was likely driven largely by the timing of the lunar new year. Eurozone eased a little in February, although this was in line with and had little impact on the or .

Still to come today we have from the US – which is likely to be revised down slightly from the flash reading – as well as , the and numbers. While all of this will be of interest, tomorrow’s appearance by Powell in front of the Senate Banking Committee will probably be more on traders’ minds today.

Original post

About the Author

Leave a comment

XHTML: You can use these html tags: <a href="" title=""> <abbr title=""> <acronym title=""> <b> <blockquote cite=""> <cite> <code> <del datetime=""> <em> <i> <q cite=""> <s> <strike> <strong>