Futures Rise Ahead Of Powell Senate Testimony

US stock-index futures were fractionally higher on Tuesday erasing a modest gain earlier in the session, set for the fourth day of gains as investors waited more visibility on monetary policy from Fed Chair Jerome Powell, who begins two days of testimony before the US Congress. Futures on the S&P 500 were 0.1% higher by 7:30 am ET after closing flat on Monday erasing a sizable earlier gain, while the Nasdaq 100 contracts climbed 0.3%. Another positive session today would place the S&P 500 on its longest winning streak since mid-January. Helping the mood today were Treasury bond yields holding below the key 4% mark even as the dollar rose to session highs. Oil, bitcoin and gold all dropped.

In premarket trading Meta Platforms was the most notable mover, rallying 2% on news the Facebook-owner is preparing to cull thousands more employees.  Cara Therapeutics dropped 30% after the biotech company’s fourth-quarter revenue missed estimates and it reported a wider-than-expected loss per share, stoking worries over demand for the company’s Korsuva kidney disease drug and prompting analysts to cut their targets on the stock. Here are other notable premarket movers:

Nutanix shares slumped as much as 9.1%, with analysts saying the delay of its 10-Q filling amid an investigation into its use of third-party evaluation software had eclipsed the cloud-platform provider’s strong preliminary results and raising of full-year guidance. Analysts said, however, that they don’t see the probe as having a big impact on the company.
Rivian Automotive shares fell 5.8% after the electric-vehicle maker announced plans to raise $1.3 billion through the sale of green convertible bonds.
Enlight Renewable Energy rose 1.2% after being initiated at Barclays and JPMorgan at overweight, and at Roth at buy, with analysts convinced of the US wind and solar project specialist’s long-term growth appeal, adding that the stock multiple is likely to rise closer to peers.

Today all eyes will be on Powell’s Senate testimony where he is expected to signal the Fed is ready to push rates higher than December’s dot plot indicated if inflation prints continue to exceed expectations, underscoring the FOMC’s resolve to get inflation under control. At the same time, he’ll acknowledge that the Fed’s dual mandate includes full employment, and that he retains hopes of achieving a soft landing for the economy (full preview here).

Liz Warren going ape on Powell tomorrow why he hasn’t cut to 0 yet will provide countless milliseconds of 0DTE gamma squeeze joy

— zerohedge (@zerohedge) March 7, 2023

Many investors remain sidelined after being burnt repeatedly betting on an inflation peak, cooling US economy and Fed policy pivot. While the S&P 500 index is up 2% this month, recouping some of February’s losses – when stronger-than-expected economic and inflation data fueled concerns about a hawkish response from the Federal Reserve trying to keep price growth in check – traders are reluctant to push the gauge much higher, until they get more clarity on how high interest rates might go and whether the world’s largest economy will dodge recession.

Meanwhile, investors have upped their interest rates expectations and become more comfortable with the direction of monetary policy signaled by Powell, said John Plassard, investment specialist at Mirabaud. “I don’t expect today’s testimony to change that,” he said, adding that the positive momentum for stocks is likely to endure.  “Some will call it a bear market rally but in the meantime, that’s the direction of travel,” Plassard added.

“There have been some positive developments — growth has been better than expected and interest rates have adjusted higher without too much volatility on equities,” said Francois Savary, chief investment officer at Swiss wealth manager Prime Partners. “We are at a point where the market is more or less correctly valued, so there is no need to be too negative on equities.” Savary expects the S&P 500 to stay in a range for the time being, noting that aside from the inflation question, “there are more challenges down the road on growth and it will be up to companies to show they can maintain earnings

Meanwhile, as Bloomberg notes, there is some relief that bond yields have not extended their run higher. Ten-year US Treasury borowing costs stayed around 3.92%, unable to sustain last week’s run above 4%, with investors noting the attraction of that yield level for buyers. Retail investors are also piling into Treasuries, snapping up the most six-month T-bills in nearly 30 years at an auction.

Citigroup strategists said that the bullish positioning in S&P 500 futures last week rose, but weekly notional changes were relatively small, with positioning net long and marginally above longterm averages. They added that bearish sentiment in Nasdaq futures continued to develop despite the underlying index climbing. “Short positioning grew last week, alongside ETF outflows. With nearly all shorts offside, and losses extending, there’s an increasing risk of a near-term squeeze,” said strategists led by Chris Montagu in a note.

European stocks edge higher as surprise increase in German factory orders reinforced the picture of a resilient euro zone economy. The Stoxx 600 is up 0.2% with utilities, healthcare and media the strongest-performing sectors. European bonds rallied, as a European Central Bank survey showed inflation expectations declining to 2.5% for three years ahead. Here are some of Europea’s biggest movers.

Ashtead rises as much as 4.6% after the US-focused parent of the Sunbelt equipment rental firm predicts full-year results ahead of previous expectations
Premier Foods shares jump as much as 10%, reaching the highest since April, after the maker of Mr. Kipling cakes boosted its sales and profit expectations for 2023
Lufthansa shares gain as much as 1.9% in Frankfurt, wiping nearly all of the declines stemming from the Covid-19 pandemic, after Barclays gave a Street high price target to the German airline
Wood Group shares jump as much as 17% after the consulting and engineering company said Apollo’s fourth proposal, at 237 pence per share, still undervalues the group
Dufry shares gain as much as 2.7% after the Swiss airport retailer’s full-year sales beat forecasts, thanks to the recovery in travel demand as well as its confirmation of mid- term targets
Zalando shares jump as much as 6% after the German online retailer delivered a profit outlook seen as slightly ahead of consensus, following 2022 earnings that beat estimates
HelloFresh shares slump as much as 13% after the meal- kit provider set profit outlook that missed expectations, with the firm pledging to shift focus away from cost mitigation to its customer base
Puma shares fall as much as 2.1% after UBS downgraded the sportswear brand to neutral from buy, saying the company’s strong market-share gains may be coming to an end
Carlsberg shares drop as much as 4% after Chief Executive Officer Cees ‘t Hart announced his decision to retire by the end of the third-quarter “at the latest”
Wincanton falls as much as 35%, the most ever, after the logistics firm says HM Revenue and Customs decided to move to another supplier for logistics services at inland border facilities
Vodafone shares fall as much as 2.3% after the CEO of top shareholder Emirates Telecommunications Group says it does not plan to bid for all of the telecom operator

Asian equities were set to snap a two-day gain as Hong Kong-listed stocks reversed an earlier advance following weak China trade data and a bout of profit-taking.  The MSCI Asia Pacific Index was down as much as 0.2%, erasing an earlier advance of as much as 0.6%. The Hang Seng China Enterprises Index closed lower, with market players citing weak export data for the first two months and policy uncertainty during the National People’s Congress as possible reasons. “Net exports are likely to be hit this year,” Wendy Chen, senior investment analyst at GAM Investments said in a note. “There are fears that the strengthening Chinese RMB, geopolitical conflict, as well as a potential recession in the US and developed markets, could result in less demand from overseas.” 

Chinese state-owned firms pared gains after a call for better access to funding by the general manager of Shanghai Stock Exchange boosted stocks earlier.  Most other markets were in positive territory, with India’s closed for a holiday. Australian stocks climbed after the nation’s central bank lifted interest rates in line with estimates and said it expects goods inflation to moderate in coming months. Energy stocks were the biggest sectoral gainers in Asia as oil broke above its 100-day moving average.

Japanese shares climbed ahead of commentary by Fed Chair Jerome Powell later Tuesday and the Bank of Japan policy meeting later this week. The Topix Index rose 0.4% to 2,044.98 as of market close Tokyo time, while the Nikkei advanced 0.3% to 28,309.16. Sony Group Corp. contributed the most to the Topix Index gain, increasing 1.3%. Out of 2,160 stocks in the index, 1,438 rose and 599 fell, while 123 were unchanged.

Australian stocks gained, the S&P/ASX 200 index rising 0.5% to close at 7,364.70, after Australia’s central bank signaled a pause in its tightening cycle after delivering a 25bps rate hike on Tuesday. “The monthly CPI indicator suggests that inflation has peaked,” RBA Governor Philip Lowe said in a statement. “Recent data suggest a lower risk of a cycle in which prices and wages chase one another.” The focus on services inflation in the central bank’s statement gives “a sop to the hawks, as does the tight labor market, but a reluctance to over-tighten into a real sector slowdown looks a key factor for the RBA in what is a slightly dovish communication,” Dwyfor Evans, head of APAC macro strategy at State Street Global Markets, wrote in a note. In New Zealand, the S&P/NZX 50 index was little changed at 11,919.56

In FX, the Bloomberg Dollar Spot Index swung from a loss to a 0.1% gain as the greenback advanced against all of its Group-of-10 peers apart from the New Zealand dollar. The Australian dollar is the weakest among the G-10s, falling 0.9% versus the greenback after a dovish hike from the RBA.

The euro fell 0.2% to $1.0664. Bunds advanced, led by the belly of the curve, and outperforming Treauries as traders eased tightening wagers after an ECB consumer survey shows inflation expectations decreased “significantly” to 2.5% for three years ahead
The pound swung to a loss after BOE policy maker Catherine Mann said the pound could weaken further in the coming months as investors absorb the implication of the US Federal Reserve and European Central Bank’s plans to raise interest rates. Demand for low-delta exposure in cable remains in free-fall mode despite key risk events ahead. UK like-for-like retail sales climbed 4.9% from a year ago in February. It was well above the 12-month average of 1.6%
The yen was steady while dollar-yen 1-week implied volatility jumped as much as 1.49 vol to 17.11, the highest in a month, before BOJ Governor Haruhiko Kuroda’s final policy meeting this week. Super-long government bonds fell after an auction drew subdued demand
Australian dollar reversed a gain, to drop against all of its G-10 peers, after the RBA hiked rates 25 basis points as expected but said that it now believes inflationhas peaked. Sovereign bond yields flipped lower

Treasuries were richer across the curve, unwinding Monday’s losses and following wider gains across bunds and gilts during European morning. TSY yields are richer by 2bp-3bp with spreads little changed on the day; 10-year around 3.94%, with bunds and gilts outperforming by 3bp-5bp in the sector, supported by a significant drop in euro-area consumer inflation expectations. German 10-year yields are down 7bps while UK 10-year borrowing costs fall 76bps. Bunds rally extended after an ECB consumer survey found inflation expectations declined “significantly” to 2.5% for three years ahead. German yields richer by ~8bp across belly of the curve with gilts long-end richer by ~7bp. Treasury auction cycle begins with $40b 3-year new issue, followed by $32b 10- and $18b 30-year reopenings Wednesday and Thursday. WI 3-year yield at 4.565% is above auction stops since 2007 and ~50bp cheaper than February’s, which tailed by 4bp. Focal points of US session include Fed Chair Powell’s appearance before the Senate banking panel at 10am New York time and 3-year note auction at 1pm.

In commodities, crude futures decline with WTI down 0.2% to trade near $80.30. Spot gold falls roughly 0.2% to trade near $1,843.

To the day ahead now, and the main highlight will be Fed Chair Powell’s testimony before the Senate Banking Committee. Otherwise, data releases include German factory orders for January, and we’ll also get the ECB’s Consumer Expectations Survey.

Market Snapshot

S&P 500 futures up 0.1% to 4,055.25
STOXX Europe 600 up 0.2% to 465.32
MXAP little changed at 162.31
MXAPJ down 0.3% to 524.63
Nikkei up 0.3% to 28,309.16
Topix up 0.4% to 2,044.98
Hang Seng Index down 0.3% to 20,534.48
Shanghai Composite down 1.1% to 3,285.10
Sensex up 0.7% to 60,224.46
Australia S&P/ASX 200 up 0.5% to 7,364.65
Kospi little changed at 2,463.35
German 10Y yield little changed at 2.65%
Euro down 0.2% to $1.0662
Brent Futures down 0.2% to $85.97/bbl
Gold spot down 0.1% to $1,845.90
U.S. Dollar Index little changed at 104.39

Top Overnight News from Bloomberg

Dovish Hike. Australia’s central bank signaled a pause in its 10-month tightening cycle is in prospect, prompting a selloff in the currency after policymakers delivered an expected interest-rate increase on Tuesday. The Reserve Bank lifted its cash rate by a quarter-percentage point to 3.6%, the highest level since May 2012. Governor Philip Lowe said in his statement that in assessing “when and how much further” rates need to go up, the RBA will pay close attention to incoming economic data. Meanwhile Jerome Powell’s testimony will be scoured for views on the economic outlook, specifically inflation, wage pressures and employment, as well as clues on the Fed’s rate path. Any dovishness may spark aggressive short-covering in short-dated Treasuries. BBG
China’s trade numbers for Jan & Feb are mixed, with exports falling 6.8% YTD (vs. the St -9%) while imports drop 10.2% YTD (vs. the St -5.5%). WSJ
Conventional wisdom says the US will avoid a devastating federal payments default later this year. But conventional wisdom has proved spectacularly wrong months ahead of shocks that upended the world in recent years: the failure of Lehman Brothers, the 2016 US election, the global spread of Covid-19. BBG
President Xi Jinping sought to rally China’s private sector to help overcome “containment” by the US and other countries, in rare direct criticism of the nation’s biggest trading partner. BBG
Japan wage numbers fall short of the St forecast, rising only 0.8% Y/Y in Jan (vs. the St forecast of +1.8% and down from +4.1% in Dec). RTRS  
Philippines witnessed modest disinflation in Feb, with the CPI coming in at +8.6% (down from +8.7% in Jan and below the St’s +8.9% forecast). RTRS
Taiwan witnessed disinflation in Feb, with the CPI coming in at +2.43% (down from +3.04% in Jan and below the St’s +2.65% forecast) while the PPI fell to +4.1% (down from +5.61% in Jan). BBG
Thailand’s CPI witnessed disinflation in Feb, with the headline number coming in at +3.79% (down from +5.02% in Jan and below the St’s +4.1% forecast). BBG  Inflation expectations drop in latest ECB survey, a development likely to bring some comfort to Lagarde and her colleagues ahead of next week’s meeting. ECB
White House will propose a plan to raise taxes on Americans earning more than $400K annually while cutting what Medicare pays for drugs in a bid to put the health program on a more sustainable fiscal footing. NYT
Meta will lay off thousands of employees this week, people familiar said. The move is driven by financial targets and is on top of the 11,000 jobs slashed in November. The plan is being finalized before Mark Zuckerberg goes on parental leave for his third child, which may be imminent. BBG
German factory orders rose 1% in January from the previous month, compared with a 0.7% decline predicted in a Bloomberg survey. The jump was due to capital goods, particularly aircraft and spacecraft construction and motor vehicle engines. BBG
Greece’s central bank governor Yannis Stournaras expects the country to regain its investment-grade credit rating within months, he told the Financial Times in an interview. BBG

A more detailed look at global markets courtesy of newsquawk

Asia-Pac stocks traded mostly higher although gains were capped as participants digested the latest Chinese trade data and with cautiousness ahead of Fed Chair Powell’s testimony in Congress. ASX 200 pared losses after the RBA rate decision where it hiked rates as expected but provided a slightly less hawkish tone in which it noted the Board expects further tightening of monetary policy will be needed which was a subtle tweak from its prior guidance that the Board expects further increases in interest rates will be needed, while it also noted that monthly CPI suggests inflation seems to have peaked. Nikkei 225 shrugged off the early weakness to trade marginally higher in the aftermath of the softer-than-expected labour earnings data including the largest decline in real wages since May 2014 which reduces the likelihood of a sooner exit from the BoJ’s ultra-easy policy. Hang Seng and Shanghai Comp. were choppy amid mixed Chinese trade data which showed a continued contraction in both dollar-denominated exports and imports, while it was also reported that the White House is considering pushing Congress on dealing with TikTok and that US Senators will announce a bill to comprehensively address the ongoing threat posed by technology from foreign adversaries.

Top Asian News

China’s State Councillor says they are to establish a national financial regulatory administration, to advance the reform of PBoC branches; to downsize staff of central-level state institutions by 5%. Deepen reform of local financial regulatory system. To abolish the China Banking and Insurance Regulatory Commission, regulator to become an agency directly under state council.
China’s Housing Minister says full of confidence in the stabilisation and rebound in China’s property market; says confidence among market players is recovering. The resumption rate of many housing project has been greatly improved.
Chinese President Xi condemned US-led suppression of China, according to state media cited by AFP.
Chinese Foreign Minister Qin Gang said US perception of China has seriously deviated and that the US thinks China is its main rival. Qin also stated that US so-called competition means containing and suppressing China, while he warned there will be conflict and confrontation if the US does not change its path but also stated that China is committed to promoting healthy and stable development of China-US relations, according to Reuters.
Taiwan’s Defence Minister Chiu said he is not aware of President Tsai meeting with US House Speaker McCarthy but added that if China makes a move, the military’s role is to fight. Chiu added that they don’t expect it to happen, but will not allow repeated provocations from China.
US Senators Warner and Thune are to announce a bill on Tuesday that will comprehensively address the ongoing threat posed by technology from foreign adversaries such as TikTok. In relevant news, the German government plans to ban telecom operators from using certain components of Huawei and ZTE in 5G networks.
RBA hiked rates by 25bps to 3.60%, as expected, while the Board remains resolute in its determination to return inflation to the target and expects further tightening of monetary policy will be needed which was a slight tweak from its previous guidance that the Board expects that further increases in interest rates will be needed, while it also noted that monthly CPI suggests inflation seems to have peaked. Furthermore, the RBA said growth in the Australian economy has slowed and the labour market remains very tight, although conditions have eased a little and that uncertainties mean that there is a range of potential scenarios for the Australian economy.

European bourses are contained, Euro Stoxx 50 +0.1%, and reside in contained ranges ahead of Fed Chair Powell. Sectors are mostly in the green, though the breadth of performance is narrow given the above. Stateside, futures are also in close proximity to the unchanged mark though they do have a slight upward-bias pre-Powell as yields ease; NQ +0.3%.

Top European News

Barclays said UK February consumer spending rose 5.9% Y/Y which was hit by a reduction in non-essential spending and higher food prices, while the sales growth was also affected by comparison to the base as there was a spike in spending in February 2022 after COVID restrictions were lifted.
ECB Consumer Expectations Survey: Inflation Expectations: 4.9% 12-months ahead (Dec 5.0%); Nominal Income: 1.3% over the next 12-months (Dec +1.0%); Nominal Spending: 3.8% over the next 12-months (Dec +4.2%)
ECB’s Stournaras says he is confident that credit rating agencies will upgrade Greece’s bonds within months. Elsewhere, Stournaras would not pre-commit to specific further rate increases amid a backdrop of headline inflation declining; saying, it could increase rather than limit market confusion. (FT)
ECB’s de Cos says core inflation is to remain elevated in the short term, and thereafter ease gradually.
BoE’s Mann says more needs to be done with rates. Weak GBP is significant for inflation; could be more to go in terms of how much is priced into GBP.
Riksbank’s Thedeen says wants to see a stronger SEK; there is not a strong argument that the SEK should be weak or weaker because of the housing market. Underlying inflation has not turned, and is still too high.
TotalEnergies’ (TTE FP) Gonfreville refinery (240k BPD) is completely blocked; Exxon’s (XOM) Port Jerome (270k BPD) and Fos Sur Mer (140k BPD) refineries are on strike, via the union. Subsequently, TotalEnergies says there is no shortage of fuel within its gas stations, reserves at a high level.

FX

The DXY continues to inch higher, but has seemingly hit a ceiling at 104.50 before Monday’s 104.69 best, with peers mostly contained/slightly softer vs USD pre-Powell.
Though, AUD bucks-the-trend and is markedly softer after the RBA hiked by 25bp and tweaked its accompanying statement, which has been taken as a dovish-adjustment by markets; AUD/USD at the lower-end of 0.6669-0.6747 parameters.
GBP and JPY are little changed despite familiar hawkish remarks from BoE’s Mann and a further easing of UST yields respectively; Cable holding at 1.20, where the 100-DMA resides, while USD/JPY has pulled back from a brief breach of 136.00.
CAD is rangebound on the eve of the BoC while the SEK has shrugged off more familiar remarks from Riksbank’s Thedeen on inflation and the SEK.
PBoC set USD/CNY mid-point at 6.9156 vs exp. 6.9159 (prev. 6.8951)

Fixed Income

Bunds have moved within a handful of ticks of Monday’s best while Gilts eclipsed their peak following the latest ECB Consumer survey.
However, the benchmarks have since faded slightly from 131.78 and 100.62 respective peaks following lacklustre UK and German issuance.
Stateside, USTs are firmer and at the top-end of 111.00-111.12 ranges with yields softer and the curve slightly flatter pre-Powell and 3yr supply.
Retail orders for the new March 2028 BTP Italia reached EUR 5bln since the start of the offer, according to bourse data.

Commodities

Crude benchmarks are in close proximity to the unchanged mark in-fitting with the broader tentative risk tone, WTI & Brent front-month futures reside within sub-USD 1/bbl parameters.
US energy envoy Hochstein said Russian oil price caps are working well and that Russian oil continues to flow which is selling at a discount, according to Reuters.
China’s average daily crude oil imports in January-February were at the highest since May last year, according to Reuters calculations based on customs records.
MMG’s Las Bambas mine is set to resume copper transportation, according to a minister.
Ukraine has begun bilateral online discussions with partners on extending the Black Sea grain export deal but not with Russia, according to a source in the Ukraine government cited by Reuters.
Gas futures are similarly contained with focus on Bloomberg reports that the EU will be making a move as a buyer’s group on international markets in April.
Spot gold is incrementally softer as the USD retains a positive-bias; yellow metal holding just above the 21-DMA at USD 1842.6/oz while base metals are softer given broader priced action and APAC price action following China’s trade data.

Geopolitics

Chinese Foreign Minister Qin Gang said China-Russia relations are not subjected to interference by third parties and the more turbulent the world is, the more China-Russia relations must advance. Qin stated that China did not create the crisis in Ukraine and has not provided weapons to either side of the conflict, while he added that conflict, sanctions and pressures won’t solve the crisis. Furthermore, he said dialogue should begin as soon as possible and what is needed now is calmness and rationality.
North Korea said US and South Korean military actions have gone too far and leader Kim’s sister said North Korea will see it as a declaration of war if the US takes military action against strategic weapon tests, according to KCNA.
North Korea says South Korea launched 30 rounds of artillery on Tuesday near its border, KCNA reports. Subsequently, North Korea’s Foreign Ministry says “The danger of a nuclear war on the Korean peninsula turns from fantasy into reality because of Washington and Seoul”, via Al Jazeera.
Syrian state media reported Israeli aggression targeting Syria’s Aleppo International Airport and a Syrian military source said Israeli aggression put Aleppo International Airport out of service.
South Korea spy agency says North Korea could test a new ICBM in March or April, according to Newsis.
Russia Defense Minister Shoigu says seizure of Bahkmut will allow further offensives in Ukraine, Interfax reports. Reminder, western officials have pushed back on the strategic importance of Bahkmut in recent sessions.
Belarus President Lukashenko says Ukraine, by order of the US, seeks to drag Belarus into the war.

US Event Calendar

10:00: Jan. Wholesale Trade Sales MoM, est. -0.5%, prior 0%
10:00: Jan. Wholesale Inventories MoM, est. -0.4%, prior -0.4%
15:00: Jan. Consumer Credit, est. $25.4b, prior $11.6b

Central Banks

10:00: Powell Appears Before Senate Banking Panel

DB’s Jim Reid concludes the overnight wrap

Risk assets looked set to start the week off on the front foot yesterday before US equities gave up virtually all their gains from the highs just as Europe went home. The S&P 500 closed +0.07% after being +0.8%. Sovereign bonds put in a weaker performance, especially from the highs after a European morning rally. A dovish hike from the RBA has helped reverse the momentum a little overnight though. This all comes ahead of Fed Chair Powell’s testimony today and tomorrow, which kicks off an important seven days ahead that includes the US jobs report this Friday, as well as the CPI release in a week’s time.

Starting with central banks, yesterday saw a number of new milestones reached, including the most hawkish market pricing for ECB rate hikes to date, with +156bps of further tightening now expected by year-end. A major catalyst for this were comments from the ECB’s Holzmann, one of the biggest hawks on the Governing Council, who said he assumed “that core inflation will not weaken significantly in the first half of the year” and that in this case “I expect we’ll hike rates by half a percentage point four more times this year”. That would imply the ECB is still hiking by 50bps in July, and if realised would take the deposit rate all the way up to 4.5%, which is a much higher number than other ECB speakers have been floating.

Those comments led to significant losses for European sovereign bonds, with the 2yr German yield up another +10.1bps to a post-2008 high of 3.315%, and the 10yr yield rising +3.4bps to 2.749% (but +11bps from the session lows). The latter being just shy of its recent closing high from last week. Those moves also led the Euro itself to strengthen further, hitting a 2-week high against the dollar of $1.0681. And there was further Euro support from natural gas prices, which fell to a fresh 18-month low in Europe of €42.15/MWh, thus continuing their consistent downward trend over the last three months.

Not to be outdone, pricing on the Fed’s terminal rate reached a new closing cycle high of 5.476% in September, up +3.3bps yesterday. This shift was seen across the curve as the rate pricing for the December Fed meeting rose +3.8bps to 5.345%, which is just shy of the cycle highs reached last Wednesday.

Attention now turns to the Fed today with Chair Powell’s testimony to the Senate Banking Committee at 15:00 London time. This is the regular semi-annual testimony after the Fed’s submits its Monetary Policy Report to Congress, but all eyes will be on whether Powell uses the opportunity to strike a more hawkish tone, particularly given the strong data and upward inflation revisions since the last FOMC meeting. The question of most interest will be whether he indicates a preference to stick to the 25bp pace going forward, or if 50bp moves are still on the table. Futures are currently pricing roughly a 1 in 4 chance of a 50bp move at the next meeting, so confirmation that’s being considered could lead to a sizeable market reaction. Ultimately though, since we’ve still got another jobs report and CPI print before the March decision, there’s still several other factors that’ll influence that decision.

Ahead of Powell’s testimony, there was a fresh bout of yield curve flattening. Most noticeably, the 2s10s Treasury curve (-2.6bps) closed at a new post-1981 low of -93.5bps. The 2s30s curve moved below -100bps for the first time since 1982, closing at -99.7bps (down -1.3bps).

Back to equities and whilst we’ve discussed how the S&P 500 (+0.07%) was fairly flat, there was a large amount of differentiation between industries. There was a strong rally among non-cyclicals like Tech Hardware (+1.5%) and Software (+0.6%) as well as defensives such as Food & Staples (+0.7%) and Utilities (+0.4%). Cyclicals such as Autos (-1.8%), Materials (-1.6%), and Consumer Durables (-1.1%) were among the biggest laggards on the index. Notably, small-caps massively under-performed with the Russell 2000 down -1.46% on the day. Back in Europe, the overall performance was similar as the STOXX 600 (-0.02%) posted a marginal decline. However, the picture was pretty divergent by country, with the UK’s FTSE 100 (-0.17%) losing ground, whereas the German DAX (+0.48%) and France’s CAC 40 (+0.34%) were in positive territory.

Asian equity markets are mostly trading higher this morning with the Hang Seng (+1.20%) leading gains across the region while the Nikkei (+0.44%) and KOSPI (+0.40%) are also in the green. Meanwhile, Chinese equities are swinging about a bit with the CSI (-0.14%) surrendering early gains whilst the Shanghai Composite (+0.16%) is slightly higher as I check my screens. Elsewhere, the S&P/ASX 200 (+0.54%) is rallying after the Reserve Bank of Australia (RBA) hiked interest rates but argued that inflation had peaked.

The 25bps increase to 3.6% was a record 10th consecutive hike but the RBA seem to be slightly guiding away from a series of hikes in the “months ahead” to a more vague “further tightening”. Following the decision, the Australian dollar lost ground dropping -0.53% to 0.6694 against the dollar before settling at $0.6713 while yields on the 3yr government bonds fell -12.7bps to trade at 3.39% as we go to press.

Outside of Asia, US stock futures are indicating a decent start with those tied to the S&P 500 (+0.21%) and NASDAQ 100 (+0.35%) printing mild gains ahead of Fed Chair Powell’s testimony.

Early morning data showed that China’s exports in the first two months of 2023 dropped -6.8% from a year before, while analysts expected it to decrease by -9.4%. Meanwhile, imports also fell -10.2%, higher than the market expected drop of -5.5% on an annualized basis.

Looking at yesterday’s other data, US factory orders fell by -1.6% in January (vs. -1.8% expected). We also got an interesting release from the New York Fed’s Global Supply Chain Pressure index. That showed that for the first time since the pandemic began, global supply chain pressures were now below their historic average, with the reading in February at its lowest since August 2019. Finally, Euro Area retail sales grew by +0.3% in January, which was a bit beneath the +0.6% expected, but went alongside a decent upward revision to the December contraction, which is now at -1.7% (vs. -2.7% previously).

To the day ahead now, and the main highlight will be Fed Chair Powell’s testimony before the Senate Banking Committee. Otherwise, data releases include German factory orders for January, and we’ll also get the ECB’s Consumer Expectations Survey.