Fed Chair Powell rocked the markets yesterday with a series of hawkish comments indicating that with the economy holding up relatively well, inflation pressures have not eased as quickly and could even rebound. Because of this, Powell suggested that the Fed may have to raise interest rates higher than previously thought and may need to re-accelerate the pace of increases, opening the door to a possible 0.50% hike at this month’s meeting after slowing to 0.25% last time. This development sent major US indices to losses of 1.25%-1.75%
Another sign of a stronger economy came in today with US ADP payrolls significantly beating expectations (242K vs street 200K. previous month revised up to 119K from 106K). US index futures were up slightly this morning but are now down slightly following this news. The 10-year treasury note yield is bouncing around 3.95% today. Fed Chair Powell’s testimony to Congress continues later this morning and the Fed’s Beige Book regional economic update is due at 2:00 pm this afternoon. Employment remains in focus this week with US nonfarm payrolls and Canada employment due on Friday.
The Bank of Canada is still expected to confirm that it has paused it’s interest rate hike program when it announces it’s latest monetary policy decision at 10:00 am EST today. Investors may look to the statement or any additional comments from officials in the coming days for any hints as to whether it is thinking about starting to increase interest rates again in future if the trend in inflation changes.
Commodities are mixed this morning with Copper up 0.9%, WTI Crude Oil down 0.4% and Natural Gas down 2.8%. US EIA weekly crude oil inventories are due at 10:30 am EST (street 0.4 mmbbls vs previous 1.1 mmbbls). Last night API announced a drawdown in its weekly inventory report (-3.8 mmbbls vs previous +6.2 mmbbls).