US and European stock futures are trading modestly lower while investors are still digesting the message from the Fed Chairman, Jerome Powell. Powell triggered a sell-off in the market yesterday during his testimony to Congress. Traders will be listening to his comments today as well when he continues his testimony in front of Congress for the second day.
The Fed Chairman has made it clear to market players that the Fed isn’t done with its job of raising interest rates. In addition, if investors think that the Fed is worried about the economic numbers, then they are wrong. This is because the message from the Chairman was that the data is telling them a compelling story that the US economy is standing on a strong footing and there is a strong need for interest rates to rise at a faster level.
Now speculators in the market believe that the next interest rate hike by the Fed will be 50 basis points. Basically, hopes of 25 basis points of interest rate hikes in March are shattered and they are unlikely to see the daylight anytime soon. The fact that the Fed has adopted a hawkish monetary policy stance once again has made traders worried and they are concerned that the Fed may be overconfident with its approach. In addition, the US stock market is addicted to loose monetary policy anyway and when there is news about the Fed taking its foot off the gas paddle, we see the US stock market rallying to the upside.
US ADP
Now the focus for today will be on the US ADP data, which is going to set the tone for the US NFP coming out on Friday. Remember, the Fed Chairman believes that the US stock market is sold, and hence they want to take further measures to control inflation. But if today’s and Friday’s economic numbers do not agree with the Fed view, we could see the Fed changing the goalposts again. The forecast for today’s US ADP number is 197K which is much higher than the previous reading of 106K. The dollar index, the US stock indices, and gold prices are highly likely to be sensitive as this data will be released today.
In addition, Powell will continue the second day of his testimony today and his remarks about the US ADP data will also be important. But it is really unlikely that any of his comments will be the market movers today as he delivered most of the important content yesterday.
Staying with the economic docket, we do have the BOC Rate Statement and overnight rate decision taking place today. Traders are not expecting any further increase the bank and it is expected that the interest rate will continue to linger near the 4.50%
Gold
The precious metal’s price action is going to be an interesting one today once again. We know that the Fed’s comments have brought life back to the dollar index and this is not so much of good news for the yellow metal. However, it seems like gold traders are taking things with a grain of salt. This means that the economic data is the most important point for gold traders and weakness in the data could push the fed to change its narrative on the monetary policy.
But overall, so far, gold prices are on track to record decent losses for the weak, which is the best news.
Bitcoin
The crypto king continues to be bashed, and the path of the least resistance seems to remain skewed to the downside. Traders are concerned with the ongoing situation with Silvergate. No one wants to see more glooming news from crypto players but the reality is that so many things were done under the table that it is difficult not to anticipate more and more skeletons coming out of the closet. For the time being, sentiment in the market seems to be negative and it is likely that it will take things time to get back on track.
