Breaking News
Get Actionable Insights with InvestingPro+: Start 7 Day FREE Trial Register here
Investing Pro 0
Ad-Free Version. Upgrade your Investing.com experience. Save up to 40% More details

Dollar Soars, Stocks Sink After Powell Hints Fed Will Move Faster With Rate Hikes

By XM Group (Trading Point )Market OverviewJan 27, 2022 06:18AM ET
www.investing.com/analysis/dollar-soars-stocks-sink-after-powell-hints-fed-will-move-faster-on-rates-200616153
Dollar Soars, Stocks Sink After Powell Hints Fed Will Move Faster With Rate Hikes
By XM Group (Trading Point )   |  Jan 27, 2022 06:18AM ET
Saved. See Saved Items.
This article has already been saved in your Saved Items
 
  • Powell makes a further hawkish pivot, signals end of era of highly accommodative policy
  • Yields and dollar jump, but stocks are battered, upbeat earnings offer some support
  • Kiwi biggest FX loser even as strong CPI fuels RBNZ rate hike bets


Fed gets tough on inflation

Fed Chair Jerome Powell left investors in no doubt that borrowing costs are set to rise in the coming months, leaving the door open to both a faster and steeper pace of rate increases. As expected, the Fed on Wednesday gave a clear signal for a March rate hike, but there was no discussion on shrinking the balance sheet. Powell said the decision on reducing the balance sheet will be made at the next two meetings.

However, markets were startled by Powell’s complete shift in tone on inflation, with the Fed chief not sounding optimistic on the supply chain issues being resolved quickly. Thus, he didn’t see inflation easing until the second half of this year.

On the other hand, his remarks on the labour market couldn’t have been more bullish, describing it as “very, very tight”. That can only mean that bringing inflation back down to 2% is now the Fed’s number one priority right now, which begs the question of how markets will react should the Fed raise rates at every meeting this year, and perhaps by more than 25-basis-points increments.

US yield curve flattens, dollar surges

Fed fund futures are now pricing almost one additional rate hike for 2022, bringing the total to five. But some analysts see more than that, and this is even before the next dot plot chart in March, which will reveal how FOMC members’ forecasts for 2023 have changed. Having been slow at first to make that initial hawkish pivot, there’s now a risk the Fed will be much more aggressive with lifting rates than current market pricing suggests.

The two-year yield on Treasury notes surged to a fresh 23-month high today, briefly hitting 1.20%. But the 10-year yield eased off from yesterday’s spike, suggesting there’s some worries about the longer-term US growth outlook from much tighter Fed policy over the next few years.

Nevertheless, the jump in short-term yields boosted the US dollar, pushing its index against a basket of currencies to 6-week highs.

Meanwhile, the modest moves in the 10-year Treasuries, which risky stocks are most sensitive to, may have staved off a massive panic on Wall Street.

US stocks suffer least from hawkish Fed as Asia tumbles

Although all of Wall Street’s main indices took a dive after the Fed’s announcement and Powell’s press briefing, having been up earlier in the day, the losses were contained for the Dow Jones and S&P 500. The tech-heavy Nasdaq even managed some marginal gains.

Microsoft’s earnings beat injected some optimism into US equities on Wednesday, while Tesla’s solid results after the market close might be aiding Nasdaq futures to edge up.

However, it seems that the Fed’s ‘get tough on inflation’ stance has spooked equites elsewhere around the world. Asian stocks in particular have been hit hard, though European indices appear to be coming off their lows.

Earnings will remain in focus later today as Apple (NASDAQ:AAPL) is scheduled to report its results after the closing bell, along with Visa (NYSE:V) and McDonald’s. The advance GDP print for the fourth quarter will be eyed too in the United States.

Strong CPI can’t stop the Kiwi’s bleeding

Overnight, stronger-than-expected CPI figures out of New Zealand failed to lift the kiwi, which has plunged to 14-month lows versus the greenback. Fears about an aggressive Fed appear to be overpowering rising expectations of rate hikes in other countries. Even though 50-bps rate rises are looking more likely by the RBNZ after the inflation data, the New Zealand dollar just keeps skidding in the face of a stronger US dollar.

The euro also took a heavy beating, plummeting below $1.12 for the first time since late November. The Canadian dollar managed to steady, however, from earlier lows, as the Bank of Canada flagged a rate hike at its next meeting in March yesterday.

Dollar Soars, Stocks Sink After Powell Hints Fed Will Move Faster With Rate Hikes
 

Related Articles

Ashraf Laidi
Yields Are In For Rude Awakening Soon By Ashraf Laidi - May 18, 2022

Just as market sentiment began improving and the US dollar index showed its first 3-day losing run since March, selling resumes across the board. Yesterday’s solid US retail sales...

Craig Erlam
Inflation In Europe Hits 40-Year High By Craig Erlam - May 18, 2022

European equity markets are a little flat on Wednesday, with inflation data this morning once again offering a reminder of the struggles that lie ahead. Not that we need reminding...

Dollar Soars, Stocks Sink After Powell Hints Fed Will Move Faster With Rate Hikes

Add a Comment

Comment Guidelines

We encourage you to use comments to engage with other users, share your perspective and ask questions of authors and each other. However, in order to maintain the high level of discourse we’ve all come to value and expect, please keep the following criteria in mind:  

  •            Enrich the conversation, don’t trash it.

  •           Stay focused and on track. Only post material that’s relevant to the topic being discussed. 

  •           Be respectful. Even negative opinions can be framed positively and diplomatically. Avoid profanity, slander or personal attacks directed at an author or another user. Racism, sexism and other forms of discrimination will not be tolerated.

  • Use standard writing style. Include punctuation and upper and lower cases. Comments that are written in all caps and contain excessive use of symbols will be removed.
  • NOTE: Spam and/or promotional messages and comments containing links will be removed. Phone numbers, email addresses, links to personal or business websites, Skype/Telegram/WhatsApp etc. addresses (including links to groups) will also be removed; self-promotional material or business-related solicitations or PR (ie, contact me for signals/advice etc.), and/or any other comment that contains personal contact specifcs or advertising will be removed as well. In addition, any of the above-mentioned violations may result in suspension of your account.
  • Doxxing. We do not allow any sharing of private or personal contact or other information about any individual or organization. This will result in immediate suspension of the commentor and his or her account.
  • Don’t monopolize the conversation. We appreciate passion and conviction, but we also strongly believe in giving everyone a chance to air their point of view. Therefore, in addition to civil interaction, we expect commenters to offer their opinions succinctly and thoughtfully, but not so repeatedly that others are annoyed or offended. If we receive complaints about individuals who take over a thread or forum, we reserve the right to ban them from the site, without recourse.
  • Only English comments will be allowed.

Perpetrators of spam or abuse will be deleted from the site and prohibited from future registration at Investing.com’s discretion.

Write your thoughts here
 
Are you sure you want to delete this chart?
 
Post
Post also to:
 
Replace the attached chart with a new chart ?
1000
Your ability to comment is currently suspended due to negative user reports. Your status will be reviewed by our moderators.
Please wait a minute before you try to comment again.
Thanks for your comment. Please note that all comments are pending until approved by our moderators. It may therefore take some time before it appears on our website.
 
Are you sure you want to delete this chart?
 
Post
 
Replace the attached chart with a new chart ?
1000
Your ability to comment is currently suspended due to negative user reports. Your status will be reviewed by our moderators.
Please wait a minute before you try to comment again.
Add Chart to Comment
Confirm Block

Are you sure you want to block %USER_NAME%?

By doing so, you and %USER_NAME% will not be able to see any of each other's Investing.com's posts.

%USER_NAME% was successfully added to your Block List

Since you’ve just unblocked this person, you must wait 48 hours before renewing the block.

Report this comment

I feel that this comment is:

Comment flagged

Thank You!

Your report has been sent to our moderators for review
Continue with Google
or
Sign up with Email