IGI Logo

Fed Chair Powell's confirmation hearing before the Senate banking committee went as expected for the most part, with renewed commitment to tighten / hike ahead of schedule if needed. Couple of Fed speakers on the day called for a hike as soon as March, but Powell stopped short of providing any timelines - just that the asset purchases will end in March according to the current schedule. Timing on the first hike and potential balance sheet reduction are still up for speculation and the market is currently pricing in between three and four 25 bp hikes for the year. The recent trading activity disclosures of the Fed governors got lesser press than expected.

The testimony gave equities an excuse to overcome the recent weakness and the SPX climbed above the 4700 level once again, building on the positive sentiment from Europe earlier in the day. Energy led all sectors again as WTI went back above the 80 level (+4% on the day) with the Brent-WTI spread compressing to a little above USD 2 a barrel. No headlines of note on Ukraine or OPEC+ so the trigger here was not obvious. Crypto was bid too (Bitcoin above 42k now), credit spreads compressed and vol sold off in keeping with the risk on price action.

Oddly, US breakeven yields jumped on the day despite Powell's testimony, suggesting further concerns about price pressures building up. Popular hedge fund managers in recent interviews have indicated that the Fed may be behind the curve already there. Ahead today we have inflation data in the US where the YoY number expected for Dec is a whopping 7%. Inflation numbers from China today came in lower than expected both on the CPI and PPI, giving the authorities there some breathing room as growth forecasts are getting downgraded. Also a crucial time for China's real estate sector, which could see Evergrande's first default on onshore bond if the creditors reject the repayment plan proposed (vote is on Thursday).”

Above views are of the author and not of the website kindly read disclaimer