Markets await Fed Chair Powell’s testimony to lawmakers

The war in Ukraine has tended to increase uncertainty regarding inflation and growth prospects. When and with what consequences this war will end is pure speculation, but capital markets are expected to build a certain immunity to the headline risks in the coming weeks. The medium- to long-term consequences, on the other hand, could be significant. It is possible that we are at the beginning of a new bloc formation or a new Cold War. This would put a significant damper on globalization and further fuel higher structural inflation. 

US equities were subdued in a choppy trading session on Monday, as the markets struggled to add to last week’s gains that snapped a string of weekly losses.  The Dow Jones Industrial Average increased 0.1% to 33,431, and the S&P 500 Index nudged higher by 0.1% to 4,048, while the Nasdaq Composite was down 0.1% to 11,676.  Elsewhere, European equity markets also ended Monday’s session towards the flatline as gains across travel and leisure equities were offset by losses in mining shares. 

Summary as at 07.03.2023 

• Asian equity markets were little changed on Tuesday as investors awaited congressional testimony from Federal Reserve Chair Jerome Powell due to start later in the day for clues on the central bank’s next move on interest rates.  Australian shares were 0.1% lower after being down 0.3% earlier in the session, while Japan’s Nikkei stock index rose 0.5%.  In Hong Kong, the Hang Seng Index was up 0.06% and China’s blue-chip CSI300 Index was 0.07% higher. 
• European equity markets were seen as little changed at the open while US equity futures were seen making small gains as investors awaited more cues from Chinese policymakers and Federal Reserve Chair Jerome Powell.  

• Oil prices extended their advance on Tuesday, hitting the highest level in over five weeks ahead of congressional testimony from Federal Reserve Chair Jerome Powell, with investors hoping that the central bank could engineer a soft landing for the US economy.  Oil prices have now advanced for the sixth straight session, underpinned by optimism over China’s demand recovery and Russia’s plan to reduce supply significantly in retaliation to Western sanctions. 
• The Reserve Bank of Australia raised the cash rate by 25bps to 3.6% this morning, matching market expectations.  Today’s move was the 10^th rate hike since May 2022, which brought borrowing costs to their highest level since May 2012.  The RBA said the monthly CPI indicator suggested that inflation had peaked, and signalled future tightening will depend on incoming economic data. 
• China’s trade surplus grew sharply in February, driven largely by a smaller-than-expected decline in exports as manufacturing activity recovered on fewer Covid disruptions, although the country’s imports shrank far more than expected. Exports fell 6.8% from the prior year, better than expectations for a drop of 9.4% and last month’s reading of 9.9%. Meanwhile, local demand showed few signs of improving from pandemic-era lows, with imports shrinking 10.2% from last year, nearly twice as much as expectations for a drop of 5.5%, and more than January’s drop of 7.5%. 
• New orders for US manufactured goods fell 1.6% month on month in January, after a downwardly revised 1.7% rise in December, still better than market forecasts of a 1.8% drop. 
• Retail sales in the Euro Area increased by 0.3% from a month earlier in January, following a downwardly revised 1.7% drop in December and missing market expectations of 1.0% growth.  On a yearly basis, retail sales declined 2.3% in January, a fourth consecutive month of contraction.  

• Zalando, Europe’s biggest online fashion retailer, said revenue could fall in 2023 after hitting the lower end of its full-year target range for 2022 on Tuesday.  The company reported 2022 revenue of €10.34 billion, down slightly from €10.35 billion a year before, and said it expected a revenue range of minus 1% to plus 4% for 2023. 
• Tesla lowered the price of its Model S and Model X vehicles in the US by 5.3% and 9.1%, respectively.  This was the second time it reduced the price of its more expensive models this year. 
• Iran announced yesterday that it had discovered a massive deposit of lithium — a key element in batteries for devices and electric vehicles — in one of its western provinces. The deposit is said to hold 8.5 million tons of lithium. If the claimed figure is accurate, that would make the deposit the second-largest known lithium reserve in the world after Chile, which holds 9.2 million metric tons of the metal, according to the U.S. Geological Survey.