Powell’s speech set new trends in market
2023.02.08 08:06
Powell’s speech set new trends in market
After a positive shift on Wall Street on Tuesday, European equity markets are expected to open a little higher on Wednesday, while Asia overnight was very mixed.
Despite Friday’s jobs report indicating that the labor market remains hot, Fed Chair Jerome Powell’s adherence to last week’s plan appears to have some investors feeling relieved. Although Powell refrained from making the leap, it would appear that traders had become a little more defensive in anticipation of a hawkish shift.
And he deserves credit for doing so. The central bank, like others, has long talked about how one data point doesn’t make a trend. The jobs report from last week raises some concerns, but it doesn’t change the game. Both participation and wages are still trending in the right direction.
Nevertheless, policymakers at various central banks are conveying a consistent message to us. Core services inflation remains a major concern, and tight labor markets make it very difficult to achieve lower wage growth consistent with 2% inflation targets. However, headline inflation is falling and will likely fall much further.
The data from the first quarter, and possibly the second, were going to emphasize that it had been clear for some time that the path back to 2% was likely to be more treacherous than the path to peak inflation. That has been demonstrated by just the most recent jobs reports, and market sentiment is likely to continue reflecting that trend in the upcoming months.
Bitcoin also got some light relief from Powell’s risk rebound overnight, which came at a good time because the cryptocurrency was getting closer and closer to range lows. It is now secure back in the middle of a range that is close to three weeks and is still holding onto most of the gains from the new year. The cryptocurrency revival may occur in 2023.
