Dollar bulls were relieved to find out that the new Fed head is set on continuing the central bank’s tightening plans, even throwing in a few upbeat remarks here and there.
U.S. economic data was actually mixed, so investors were understandably nervous about the prospect of more rate hikes. Risk aversion weighed on equities and commodities, dragging the higher-yielding Kiwi down as well.
- U.S. headline durable goods orders down 3.7% vs. projected 2.4% fall
- U.S. core durable goods orders down 0.3% vs. estimated 0.4% uptick
- U.S. goods trade deficit widened from $72.3B to $74.4B
- U.S. CB consumer confidence index rose from 124.3 to 130.8 vs. 126.2 consensus
- U.S. Richmond manufacturing index up from 14 to 28 vs. estimate at 15
- Fed Chairman Powell: Headwinds facing U.S. economy are now tailwinds
- Powell: Risks roughly balanced but still monitoring inflation
- Powell: Doesn’t see a large risk of recession at this point
- Powell: Won’t prejudge what will happen but waiting too long to hike poses risks
Mostly weak U.S. data
Uncle Sam’s reports were a mix of green and red (but mostly red!) as businesses seemed to scale back on activity while consumers became more confident.
The CB consumer confidence index improved from 124.3 to 130.8, outpacing the 126.2 consensus to show a stronger level of optimism in February. This also marked its highest level since 2000 as consumers were reportedly more confident about labor market conditions.
The Richmond manufacturing index also came in better than expected as the reading jumped from 14 to 28, way higher than the estimate at 15. Components of the report revealed that this was mostly spurred by higher shipments, orders, and employment.
On the flip side, the durable goods orders report turned out to be a huge disappointment as the headline reading slumped by 3.7% versus the projected 2.4% fall while the core figure posted a 0.3% drop instead of the estimated 0.4% uptick.
A huge 28.4% decline in purchases of commercial aircraft is being blamed for the dismal figures, along with the 45.6% drop in bookings for defense aircraft.
The goods trade balance also fell short of estimates as the deficit widened from $72.3 billion to $74.4 billion due to a $3.1 fall in exports from the December period. This marked its fourth month of weaker than expected results. Analysts predict that this could weigh on the country’s overall trade numbers, as well as the GDP reading for the quarter.
New Fed Chief Powell’s testimony
Dollar traders had been waiting with bated breath to hear about new Fed head Powell’s take on the economy and monetary policy. Although the text of his prepared speech was released before the actual event, the Greenback barely budged until Powell’s Q&A portion.
In his speech, Powell highlighted the progress being made by the U.S. economy and how previous monetary policy changes have steered it in the right direction. He reiterated that the Fed will continue to strike a balance between avoiding and overheated economy and bringing inflation to their target level. He noted:
“While many factors shape the economic outlook, some of the headwinds the U.S. economy faced in previous years have turned into tailwinds.”
Powell reiterated that gradual increases in interest rates will remain appropriate and that they will continue to monitor incoming data to gauge if adjustments are needed.
When asked about the path of interest rates in the months ahead, Powell clarified that he won’t prejudge what might happen next but listed some factors such as tax cuts, better global growth, and stronger exports that could keep the Fed on a hawkish stance.
Risk aversion still present?
Wall Street didn’t seem too pleased about stronger odds of seeing more interest rate hikes in the coming months as higher borrowing costs could limit business and consumer activity.
- Dow 30 index is down 299.24 points to 25,410.03 (-1.16%)
- S&P 500 index is down 35.32 points to 2,744.28 (-1.27%)
- Nasdaq is down 91.11 points to 7,330.35 (-1.23%)
Commodities are also in the red, but bitcoin has managed to scrape some gains.
- Gold is down $14.76 or t0 $1318.90 per troy ounce (-1.10%)
- WTI crude oil is down $1 to $62.89 per barrel (-1.50%)
- Bitcoin is up nearly $300 to $10,670
Major Market Mover(s):
The dollar was already in a good mood from the previous trading session and it got another strong boost from Powell’s hawkish hints.
USD/JPY bounced off the 107.00 area to a high of 107.68, EUR/USD fell from 1.2330 to a low of 1.2221, GBP/USD is down to a low of 1.3857, and USD/CHF popped up to a high of .9418.
Risk-off vibes weighed heavily on the higher-yielding Kiwi as global tightening prospects spurred demand for safe-havens.
NZD/USD sank from .7283 to a low of .7231, NZD/JPY tumbled back to the 77.50 area, GBP/NZD popped up to the 1.9200 levels, and AUD/NZD is up to 1.0768.
Watch Out For:
- 11:50 pm GMT: Japanese preliminary industrial production (-4.9% expected, +2.9 previous)
- 11:50 pm GMT: Japanese retail sales y/y (2.3% expected, 3.6% previous)
- 12:00 am GMT: New Zealand ANZ business confidence index (-37.8 previous)
- 12:30 am GMT: Australia’s private sector credit
- 1:00 am GMT: Chinese official manufacturing PMI (dip from 51.3 to 51.2 expected)
- 1:00 am GMT: Chinese official non-manu PMI (55.3 previous)
- 5:00 am GMT: Japanese housing starts y/y (-4.5% expected)