How did the markets react to the first day of Powell’s two-day semiannual monetary policy testimony before Congress?
Gold slightly declined following the testimony.
Gold prices fell slightly on Wednesday, to their lowest level in a week, after US Federal Reserve Chairman Jerome Powell said that interest rates might need to rise higher than expected to curb inflationary pressures.
Markets envision the Fed raising interest rates by 50 basis points at the next meeting scheduled for March 21st and 22nd.
Futures contracts for the yellow metal for April delivery decreased slightly by 0.14%, at $ 1817.40 an ounce, at exactly 07:15 GMT, and the spot price for delivery settled at $ 1813.70 an ounce.
Silver futures for May delivery also fell by 0.59% to $20.08 an ounce, while the spot price of platinum rose 0.42% at $939.06, and the palladium price rose 0.16% to $1,393.73.
European stocks drop as Powell signals a larger interest rate hike.
European stocks fell on Wednesday, March 8, after US Federal Reserve Chairman Jerome Powell said there is a possibility of sharp increases in interest rates, while sportswear company Adidas fell after announcing plans to cut its annual dividend.
The European Stoxx 600 index fell 0.3% by 08:05 GMT, reaching its lowest level in a week.
The index recorded its most significant daily decline in nearly two weeks on Tuesday after Powell said in a hearing before the Senate Banking Committee that the central bank may need to raise interest rates more than expected and is ready to move with greater steps to control inflation.
Adidas shares fell nearly 2% after the German sportswear maker said it plans to cut its annual dividend to 0.70 euros ($0.7374) per share.
Symrise fell 4%, dragging the European chemicals sector lower after the German flavor and fragrance maker forecasted a profit margin for 2023 that was slightly lower than market expectations due to higher costs.
US indices plunged sharply.
US indices closed sharply lower on Tuesday after Jerome Powell testified before the US Congress that the Fed would likely need to raise interest rates more than expected to curb soaring inflation. Powell also stated that the Fed would not consider changing its 2% inflation target and that the labor market does not indicate an approaching deflation.
After the remarks, investors dramatically raised their bets on a 50 basis point rate hike in March, with money market futures pricing in more than a 65% chance of such a move, up from 31% before the comments.
The two-year US Treasury yield, considered the most sensitive indicator of US indices, jumped to more than 5% for the first time in about 16 years. These rises came in conjunction with the dollar index’s rise to its highest level in more than two months, following the hawkish statements made by the Federal Reserve Chairman about raising interest rates.
The S&P 500 index fell by 1.5% to 3,986 points, amid a collective decline for all sectors of the index. The Dow Jones index fell by 1.7%, equivalent to about 570 points, recording its highest daily loss in two weeks to close below 33,000 levels.
The Nasdaq Composite Index declined by 1.25%, recording its worst session since the beginning of March, to close at 11,530 points. Except for the education sector, all other major sectors declined on Tuesday, including the technology and energy sectors, which fell by 1.2% and 1.1%, respectively.
The dollar bulled to a 3-month-high.
The dollar rose to multi-month highs against most other major currencies on Wednesday after US Federal Reserve Chairman Jerome Powell warned that interest rates might be needed to grow faster and higher than expected to rein in stubborn inflation.
The dollar index rose 0.2% in Asian trading to its highest level over three months at 105.86.
The dollar crossed the 200-day moving average against the Japanese yen for the first time this year, rising 0.5% to a three-month high of 137.79 yen.
Against the single European currency, the US currency recorded its highest level in two months at $1.0528 per euro, extending Tuesday’s jump of 1.2%. The pound sterling, Swedish and Norwegian kroner, Chinese yuan, and Canadian, Australian, and New Zealand dollars also fell to their lowest levels in several months against the dollar.
The British pound fell slightly to $1.1811, its lowest since late November.
The Chinese yuan recorded its lowest level over two months at 6.9782 per dollar, steps away from the remarkable seven yuan per dollar level.
The Australian dollar also fell after the Reserve Bank of Australia softened its tone on the path of interest rates. After losing 2% on Tuesday, it has retreated slightly from a four-month low of $0.6568 on Wednesday.
Yesterday, “Powell,” told lawmakers in Congress that the latest US economic data came out stronger than expected and, therefore, may mean the need to increase the speed and size of future interest rate hikes.
Powell’s comments also sent short-term interest rate expectations higher, as traders now expect a near 70% chance of a 50bps hike in the US interest rate in March, according to CME’s FedWatch, up from about 30% the day before.
Cryptocurrencies fell, and Bitcoin is trading at $22,000.
Bitcoin fell on Wednesday after Federal Reserve Chairman Jerome Powell’s speech reflected a trend towards further tightening monetary policy amid continued regulatory crackdowns on the global crypto industry.
Bitcoin was down 0.24% at $22,003.25 at 07:50 GMT, according to Coinbase data. Ethereum rose 0.31% to $1,553.14, and ripple fell 1.68% at 37.64 cents.
On the other hand, the Russian Association for Digital Economy and Artificial Intelligence – the organization that represents the crypto and blockchain sector in Russia – has asked Russian President Vladimir Putin to stimulate regulatory efforts, fearing that Russia will fall behind other countries if it remains conservative in its approach towards new financial technologies. This puts the economy at serious risk, as reported by Bitcoin.com.
A US court has questioned the Securities and Exchange Commission’s rejection of a proposal by Grayscale Investments to create a spot fund to trade bitcoins, arguing that it did not meet anti-fraud and investor protection standards.
Oil fell as interest concerns outweighed the decline in US inventories
Oil prices fell in trading today, Wednesday, despite what was shown by industry data and withdrawals from US crude oil inventories, as fears that sharp increases in US interest rates would hurt demand were overwhelmed.
Brent crude futures for April were down 33 cents at $82.96 a barrel by 08:07 GMT. US crude futures lost 45 cents to $77.13 a barrel.
Supporting the market today, Wednesday, data from the American Petroleum Institute showed that US crude inventories fell by about 3.8 million barrels in the week ending March 3. The decline missed expectations for an increase of 400,000 barrels in crude stocks. Gasoline stocks increased by 1.8 million barrels, while distillate stocks increased by 1.9 million.
Brent and US crude fell more than 3% on Tuesday after US Federal Reserve Chairman Jerome Powell said the central bank would likely need to raise interest rates more than expected in response to the recent robust data. “This raised concerns about weak demand in the US,” ANZ Research analysts said in a note to clients.
Powell’s comments pushed the dollar, which usually goes against oil, to a three-month high against a basket of currencies.
Nikkei touched a 3-and-a-half-month high supported by the yen’s decline and optimism about China.
Japan’s Nikkei rose Wednesday, March 8, to a three-and-a-half-month high for the fourth consecutive session, as a weaker yen boosted expectations for export firms.
After Japan reopened its borders this month, retail stocks also rose on optimism about the return of high-spending Chinese tourists.
The Nikkei ended the session by 0.48%, at 28,444.19 points, after strongly continuing its gains in afternoon trading. It had touched 28469.41 points just minutes before closing, a level not recorded since November 24. The index has risen by about 3.5% since last Thursday.
The broader Topix index rose by 0.3% to 2051.21 points and touched 2053.01 points for the first time since November 2021.
Disclaimer: This article is not investment advice or an investment recommendation and should not be considered as such. The information above is not an invitation to trade and it does not guarantee or predict future performance. The investor is solely responsible for the risk of their decisions. The analysis and commentary presented do not include any consideration of your personal investment objectives, financial circumstances, or needs.
