Hawkish Powell keeps markets on defense

All three major US indices finished in the red for the third straight session on Wednesday, and after Fed Chair Powell pointed to more rate hikes before Congress. The Dow Jones fell over 100 points, the S&P 500 and the Nasdaq lost 0.5% and 1.2%, respectively, driven by weakness in the technology sector, as further future rate hikes spooked investors and enthusiasm around artificial intelligence subsided. Investors were digesting remarks from Fed Chair Powell to Congress suggesting that rates will need to rise further to combat inflation. Powell noted that inflationary pressures remain high and getting inflation back to 2% still has a long way to go.  European shares also extended their losses yesterday, with the Euro Stoxx 50 Index down 0.5% to 4,323 points. 

Summary for 22.06.2023 

• Most Asian equities fell slightly on Thursday, tracking overnight declines on Wall Street as regional trading volumes were somewhat limited on account of market holidays in China and Hong Kong.  Chinese markets are closed for the remainder of the week.  Australia’s ASX 200 was the worst performer for the day, losing 1.5% as markets continued to lock in profits after a seven-day rally in the index. 
• European equity futures were heading for a negative open this morning while US futures were flat after a 3-day losing streak. 
• Oil prices moved little in early Asian trade this morning, sticking near a two-week high, underpinned by industry data showing US crude inventories dropped by 1.246 million barrels last week, well below market expectations for a 433,000-barrel decline.  Analysts also noted muted increases in US oil output and production cuts by OPEC+ that could limit crude supply in the coming months and lift oil prices. 

• Nearly all FOMC participants expect that it will be appropriate to raise interest rates somewhat further by the end of the year, Fed Chair Powell reinforced in prepared remarks for the Semi-annual Monetary Policy Report to Congress. Powell added that the Fed will continue to make decisions meeting by meeting, based on the totality of incoming data and their implications for the outlook for economic activity and inflation, as well as the balance of risks. “Earlier in the process, speed was very important,” but “It is not very important now.” At the same time, inflation pressures continue to run high, and the process of getting inflation back down to 2% has a long way to go and will take time for the full effects of monetary restraint to be realized. 
• In contrasting comments, Atlanta Federal Reserve President Raphael Bostic said yesterday that the Fed should not raise rates further or it would risk “needlessly” sapping the strength of the US economy. 
• The consumer price inflation in the UK held steady at 8.7% in May, unchanged from the previous month’s 13-month low and above market expectations of 8.4%. The rate remained significantly higher than the Bank of England’s target of 2.0%, increasing concerns about its stickiness and placing additional pressure on policymakers to maintain the bank’s ongoing tightening campaign. The core inflation rate rose to 7.1%, the highest since March 1992. 
• Britain’s red-hot inflation may force the Bank of England to step up the pace of its interest rate rises again on Thursday against a backdrop of chaos in the UK mortgage market. Economists and investors expect the Monetary Policy Committee to push ahead with another quarter-point increase in Bank rate to 4.75%, the 13th rise in what is now likely to be an extension of the quickest hiking cycle in more than three decades. Money markets place a 40% chance on a bigger half-point increase to 5%.   
• Amazon shares fell yesterday after the Federal Trade Commission sued the online retailer, alleging Amazon had manipulated millions of shoppers into signing up for Prime and then hindered their attempt to cancel their subscriptions.  Amazon shares were down about 0.7%. 

• FedEx Corp. reported revenue of $21.9 billion for its most recent quarter, down 10% from the same period in 2022 and lower than Wall Street expectations.  Weaker operating results were primarily due to decreased shipments and lower weight per shipment, the company said.  Its shares fell about 2.7%. 
• Tesla shares were downgraded to “equal weight” from “overweight” by Barclays, which said the share price recent rally had been too sharp considering near-term fundamentals.  Shares of the electric vehicle maker fell 5.5%.