Risk Assets Jump Ahead of Powell Testimony

 

Powell Prepares for First Congressional Testimony

Tomorrow morning, newly appointed Fed Chair Jerome Powell will take center stage in financial markets as he participates in the first of two annual testimonies before Congress.  Powell will present a prepared speech beginning at 8:30am EST, to be followed by questions from the House Financial Services Committee shortly thereafter — both of which will be parsed by investors looking for clues regarding Powell’s views on inflation and future pace of rate hikes.  Additionally, markets will be interested to hear Mr. Powell’s perspectives on the effect of the large increase to the federal budget/debt ceiling as well the expected impact of the newly passed tax cuts.

 

 

Separately, in an interview earlier today, St. Louis Federal Reserve President James Bullard (non-voter, dove) presented his cautious outlook for the timing of additional rate hikes, stating that if “the Committee raises the policy rate substantially from here without other changes in the data, the policy setting could become restrictive.”  In the past Bullard has argued that the US economy is stuck in a low-growth, low-inflation environment that will require hard evidence (data) to make the case for a significant tightening to monetary policy.  “I have been a little bit concerned that the committee goes too far too fast,” Bullard explained. “If we are going to do a lot of rate hikes we have to have data that supports that.”

 

Equities Continue To Rally

US stocks extended Friday’s rally, as major indices climbed more than 1%, boosted by shares in the tech and financial sectors.  Treasurys similarly rallied for the majority of the session, but pared gains into the close, leaving yields/swap rates near unchanged on the day.  The 10-year note yield closed a touch lower to 2.86%.  In commodities, crude oil futures extended gains as WTI crude rose 0.7% to nearly $64/barrel – its highest level in three weeks.

 

 

New Home Sales Fall for Second Straight Month

New home sales for January kicked off a busy week of key economic data releases, where a 7.8% MoM decline to a seasonally adjusted 593,000 pace was reported.  The figure fell below median forecasts of a 648,000 rate, as purchases in the South (-14.2%) and Northeast (-33.3%) regions recorded their largest declines in more than a year.  New homes available climbed to 301,000 in January (295,000 prior month), and the outstanding inventory rose to a 6.1-month supply – the highest since 2014.  Also detailed in the data, the median new home sales price increased to $323,000, a 2.5% YoY gain.