Suderman says: Powell left market’s guessing on rates hikes, but data argues for a 50-point hike in March

Fed Chair Powell left market’s guessing on the path for rate hikes, citing data as the main determinant. Markets were weaker on his testimony, and the dollar continued to be strong, as jobs data continues to point to inflation risks.

Rate hikes will track data on inflation

• Federal Reserve Chair Jerome Powell’s testified that "we are not on a preset path" for monetary tightening decisions as he spoke to the House Financial Services Committee, and will remain "data dependent"
• However, the overall tone continues to be that rates will likely need to be raised higher and for longer than previously anticipated
• No decisions have yet been made regarding the size of the next rate hike on March 22, and there is still plenty of data coming out between now and then that could impact that decision
• Fed fund futures suggested 72% odds of a 50-basis point rate hike on March 22, up from 30% last week

  Financial markets and oil weaker, dollar stronger

• Broad stock market indices were modestly weaker from the opening bell
• The VIX, Wall Street’s fear index, suggesting more fear and traded between 19 and 20
• The dollar index strengthened to 105.7 by midday, up 1.5% this week
• Yields on 10-year Treasuries touched 3.99%, close to the psychologically important four-point mark
• Crude oil prices were down 1%, with today’s Department of Energy’s Petroleum Report saw most petroleum product inventories building against the seasonal trend

Stronger jobs numbers (again) point to inflation risks

• Data out today suggests the jobs market remains tight, ahead of key payroll numbers on Friday, indicating that the Fed still has considerably more work to do to tame wage inflation
• The Job Openings and Labor Turnover Survey (JOLTS) reported 10.824 million open job postings on January 31, above analyst expectations of 10.6 million openings
• December job postings were revised to a near-record 11.234 million, up from the 11.012 million originally reported
• The private sector created 240,00 jobs in February, according to this morning’s report from Automated Data Processing, Inc., double the January’s 119,000 and above market expectations
• This raised concerns about the potential strength of Friday’s none farm payroll data to be released on Friday, and expectations of 220,000 may be too low

China rebound continues

• Combined January and February retail car sales in China were off 20% year-on-year
• This coincides with other data showing sluggish sales of durable goods in the recovery, in contrast to the rush to enjoy life following three years of Covid lockdowns and restrictions
• While Chinese people are anxious to get out and to enjoy life, they lack confidence in the economy, nor is income high enough, to make the big-ticket purchases

Weak Argentinian crops harvest confirmed

• The US Department of Agriculture pegged Argentina's corn crop at 40 million metric tons, down from 47 million metric tons last month, with the soybean crop cut to 33 million metric tons, down from 41 million metric tons last month
• Grain and oilseed prices are back to trading where they were prior to the report's release, focusing more on support from a strong dollar

Analysis by Arlan Suderman, Chief Commodities Economist

Contact: Arlan.Suderman@StoneX.com