Suderman says: what will Fed Governor Powell say?

Arlan Suderman describes how stocks rallied and Treasury yields held steady, as markets looked ahead to this week’s Congressional testimony from Federal Reserve Chair Jerome Powell for guidance on interest rate policy.

All eyes on Fed Governor Powell

• Fed Chair Powell’s two-day testimony before the Senate Banking Committee and the House Financial Services Committee will see him being grilled on the central banks’ interest rate plans and the outlook for inflation
• Traders will be parsing his words to discern further and more aggressive rate rises
• The Federal Reserve will need to bring wage inflation under control if it is going to stay committed to its 2% inflation mandate, and that likely means more pain for the economy
• Jobs data will be a key focus this week: private sector jobs data from ADP on Wednesday, and official non-farm payrolls on Friday

Markets calm ahead of Powell speeches

• Stocks were marginally ahead on the day, giving up early gains after lunch
• The VIX, Wall Street’s fear index, held steady at 19 by midday
• The dollar index was trading slightly lower at 104.2
• Yields on 2-year and 10-year Treasuries steadied at 4.88% and 3.97%, respectively
• Crude oil prices rise nearly 1% higher, erasing early losses, and reflecting continued political fears

Commodity markets focus on somber Chinese growth outlook

• Commodity markets are focused on the macroeconomic outlook, and so demand
• China announced a 5% economic growth target for this year, at the bottom end of market expectations
• Selected commodity prices came under pressure on the China news
• Wheat prices tumbled today on expectations that the Ukraine grain trade initiative to allow supply will be extended
• Soymeal and soybean prices surged to double-digit gains on more reports of crop losses in Argentina
• Grain and oilseed markets were mixed after technical selling
• China also shifted to a softer tone in its comments toward Taiwanese independence, and its more aggressive plans for reunification

Weather patterns lessen drought fears, and so crop risks, in the Americas

• The La Nina weather pattern is essentially dead, with increased risks for drought in the Australia and South Africa growing seasons, but generally reduced risks for drought in primary growing areas of North and South America

Analysis by Arlan Suderman, Chief Commodities Economist

Contact: Arlan.Suderman@StoneX.com