Did Powell tell us anything new?

Thoughts of the Day

Fed Chair Powell’s hawkish comments on inflation progress & a weak 30-year Treasury bond auction drove US bond yields higher. Despite lower inflation, the Fed remains cautious and is refraining from declaring victory in the war against inflation for now.

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Day Ahead

The UK GDP is expected to contract -0.1% Quarter-on-Quarter in the Q3, down from a +0.2% growth in Q2.  

The University of Michigan consumer sentiment is expected to come in at 64, up from 63.8 previously.

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What Happened Yesterday

Market Movements as of New York Close 9 Nov 23
  • Fedspeak:
    Bowman (current voter, known hawk): “There is an unusually high level of uncertainty regarding the economy and my own economic outlook, especially considering recent surprises in the data, data revisions, and ongoing geopolitical risks. Currently, the federal funds rate appears to be restrictive, and financial conditions have tightened since September.”
  • Barkin (2024 voter, slight hawk): “The job isn’t done; inflation remains too high. Not yet convinced inflation is on a smooth glide path to 2%. Will need economic slowing to beat inflation.”(Bowman’s hawkish stance seems to be wavering but Barkin has turned from neutral to hawkish.)
  • The US Treasury Yield curve inversion narrowed to 0.41% as the US 2-year bond yield rose +0.10% to 5.03% while the US 10-year bond yield rose +0.13% to 4.62%. The increase in the 2-year yield was due to Powell’s remarks while the increase in the 10-year yield was due to weaker-than-expected demand for 30-year Treasury bonds auction.
  • The US stock futures drifted higher through the Asian and London trading hours with the S&P 500 futures up 0.36% before the New York session began.
  • The US stock market opened higher from Wednesday. The market then traded slightly lower following the remarks from Bowman. It then traded sideways thereafter before Barkin’s hawkish remarks and Powell’s remarks that the Federal Reserve may not have done enough (see headline 1) sent US bond yields higher and the US stock market lower.  Consequently, the S&P 500 closed the day lower at -0.81% (high: +0.24%, low: -0.89%), the Dow slid -0.65% (high: +0.16%, low: -0.74%) while the Nasdaq dropped -0.82% (high: +0.45%, low: -0.93%).
  • The crypto market was encouraged after a Nasdaq filing confirmed BlackRock’s plan to file for an ETH-based ETF. Bitcoin climbed +2.97% while Ether soared +12.3%
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Headlines & Market Impact

Powell says Fed is ‘not confident’ it has done enough to bring inflation down

Notable Snippet: Federal Reserve Chairman Jerome Powell said Thursday that he and his fellow policymakers are encouraged by the slowing pace of inflation but are unsure whether they’ve done enough to keep the momentum going.

Speaking a little more than a week after the central bank voted to hold benchmark policy rates steady, Powell said in remarks for an International Monetary Fund audience in Washington, D.C., that more work could be ahead in the battle against high prices.

“The Federal Open Market Committee is committed to achieving a stance of monetary policy that is sufficiently restrictive to bring inflation down to 2 percent over time; we are not confident that we have achieved such a stance,” he said in his prepared speech.

“My colleagues and I are gratified by this progress but expect that the process of getting inflation sustainably down to 2 percent has a long way to go,” he said. “We will keep at this until we succeed,” he later added, saying the Fed is focused on whether rates need to go higher and how long they need to stay elevated.

“If it becomes appropriate to tighten policy further, we will not hesitate to do so,” he said. “We will continue to move carefully, however, allowing us to address both the risk of being misled by a few good months of data, and the risk of overtightening.”

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Bank of Canada: era of very low rates is likely over, people and firms must adjust

Notable Snippet: The Bank of Canada (BoC) on Thursday said the era of super-low interest rates was likely over and warned businesses and households to plan for higher borrowing costs than they have been used to in recent years.

During the years of the pandemic, the central bank’s policy rate was just 0.25% most of the time and never topped 1.75%. It is now at a 22-year high of 5.0%.

And at a time of higher government debt and geopolitical risks including wars in Ukraine and in Israel, long-term market rates have also moved higher.

“It’s not hard to see a world where interest rates are persistently higher than what people have grown used to,” Senior Deputy Governor Carolyn Rogers told Advocis Vancouver, an association of financial advisors on the West Coast.

Rogers said she wanted “to stress the importance of adjusting proactively to a future where interest rates may be higher than they’ve been over the past 15 years”.

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BlackRock plans for ethereum trust fuel speculation about ETF filing

Notable Snippet: Asset management giant BlackRock registered to create an ethereum trust, a potential first step toward asking regulators to approve an exchange-traded fund tied to ether, the second-largest digital token.

BlackRock registered the iShares Ethereum Trust as a Delaware statutory trust on Thursday. Nasdaq also filed a proposal on Thursday to list and trade shares of the trust.

Earlier this year, BlackRock registered a bitcoin trust in the same manner and a week later filed an application with the SEC to launch a spot bitcoin ETF. BlackRock declined to comment on the trust’s creation or on any plans for an ETF filing.

To date, roughly a dozen ETF providers have filed to create spot bitcoin ETFs, or convert existing products into spot ETFs, helping fuel the recent rally in the cryptocurrency.

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Phan Vee Leung
CIO & Founder, TrackRecord