Marketmind: Powell has spoken – bullish or bearish?
Fed President Jerome Powell spoke and luckily for the bulls and bears, there was something for everyone, so where the Asian markets go on Wednesday is a flip flip thing.
With an expected interest rate hike in India taking center stage regionally, investors in Asia will be digesting the mixed US picture that saw stocks rise but the dollar and Treasuries decline Tuesday.
Wall Street was boosted and the dollar weighed down by Powell’s reluctance – indeed, refusal – to say that January’s blowout jobs data necessarily means interest rates need to be higher than estimated by Fed officials late last year.
But he also said that “it will take some time” for the inflation genie to return to the 2% bottle. Bond prices fell, yield curves rose, the expected “terminal rate” remained at 5.15% and the amount of implied policy easing this year remained stable at around 15 points base only.
The Reserve Bank of India is likely to raise its key interest rate by 25 basis points to 6.50%, which many economists consider to be the end of the hiking cycle.
More than three-quarters of the 52 economists polled by Reuters last month expect an increase of a quarter point, and 12 predict no change. But as Australia’s central bank showed on Tuesday, beware of surprises.
The Indian rupee enters the meeting at its lowest level in a month against the dollar, under pressure from the rate outlook and overwhelmed by the financial crisis of the Adani Group, which has turned into a political crisis.
It was revealed on Tuesday that the group is considering an independent assessment of issues related to legal compliance, related party transactions and internal controls after a critical US short seller’s report on its businesses triggered a loss of more than $110 billion in the group’s market value.
Adani gained some traction after JP Morgan said the group’s companies were still eligible for inclusion in the bank’s influential bond index, while rating agencies said the credit profiles of Indian banks are safe.
With the rupee within a whisker of October’s record low, however, traders will be on alert for RBI intervention.
Elsewhere in regional FX, the Aussie dollar has a spring in its step after Australia’s central bank on Tuesday raised rates to a decade and signaled it may tighten policy more than expected. the markets.
The yen also shot higher on Tuesday, snapping two days of heavy losses after strong data on wage growth. December’s current account figures are due on Wednesday.
Here are three key developments that could provide further direction to the markets on Wednesday:
– India’s interest rate decision
– Japan current account (December)
– The Fed’s Williams, Cook, Bostic, Barr, Kashkari and Waller all speak
(By Jamie McGeever; Editing by Lisa Shumaker)
By Jamie McGeever