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A look at the day ahead in U.S. and global markets from Mike Dolan
Hyperactive U.S. policy moves appear to have frozen macro markets this week, with Wednesday’s key U.S. inflation release set to hold Federal Reserve boss Jerome Powell’s benign take on economy up to the light.
Powell basically told Congress on Tuesday that the economy was fine and that Fed policy was sufficiently well calibrated to deal to with uncertainties surrounding the new government plans – credit is still ‘restrictive’ while they wait and see.
“We are in a pretty good place,” Powell told the Senate committee – citing tariffs, immigration, fiscal and regulatory policy as the key variables the Fed will “try to make sense of”.
January’s consumer price inflation report might not contain many clues about the year ahead, but it will cement views on the starting point. Headline inflation is expected to remain just below 3%, with the annual core rate slipping to 3.1%, and Powell gets a chance to comment on the number as he reprises his testimony to the House Financial Services committee later.
But with another sweep of Washington moves overnight on everything from reciprocal trade tariffs to cutting Federal workers, financial markets also appear to have reverted to a ‘wait and see’ mode.
The S&P500 closed flat on Tuesday, about 1% shy of last month’s record high, and index futures showed little movement overnight either.
The fourth-quarter U.S. corporate earnings season provides a pretty serene backdrop, tracking circa 15% annual profit for S&P500 overall, and recent turbulence in the bond market has subsided too.
Worries about investor demand for sovereign debt have been assuaged in recent weeks, with $58 billion of 3-year Treasury notes flying off the shelf yesterday and $42 billion of 10-year paper up for grabs later on Wednesday.
Syndicated government debt sales in Britain and Italy this week have been more than 10 times oversubscribed.
An irksome energy pop did rattle bonds earlier this week, but that too has reversed on Wednesday. U.S. crude ebbed – clocking year-on-year losses of 5% – as industry data out later is expected to show an increase in stockpiles. The Energy Information Administration, meantime, lifted estimates for U.S. crude production while leaving its demand forecast unchanged.
Ten-year Treasury yields hovered just above 4.5% awaiting today’s inflation update and auction.
With tariffs and threats of them flying daily from Washington and retaliatory moves in the works, even currency markets previously so sensitive to the import duties have settled down considerably.
