Powell Reaffirms Fed Hawkishness
Fed chairman Powell was back on the wires yesterday. Speaking during a livestreaminterview with Wall Street Journal Powell warned that the Fed stands willing todo whatever necessary to bring inflation down to target. Elaborating further,Powell said: “If that involves moving past broadly understood levels of neutralwe won’t hesitate to do that. We will go until we feel we’re at a place wherewe can say financial conditions are in an appropriate place, we see inflationcoming down. We’ll go to that point. There won’t be any hesitation about that.”
.5% June & July Hikes Priced In
Yesterday’scomments mark the latest in a series of hawkish commentary from the Fedchairman who recently had his second term approved. The market is widelyexpecting the Fed to hike rates by a further .5% in June and July. However, werecently heard Powell opening the door to even larger hikes if necessary.
Hard-Landing Risks
Whenquestioned over the projected impact on the US economy, Powell warned thatavoiding a hard landing would be extremely difficult. However, the Fed chairsought to reassure markets explaining that because the labour market has beenso strong going into this tightening cycle, there is a decent cushion in placewhich should help offset the harsher effects of the rate hikes. On this, Powellsaid: “You’d still have a strong labor market if unemployment were to move up afew ticks.”
"Some Pain" Coming
Notably,Powell’s message was a little more balance and optimistic than last time.Looking ahead Powell noted “I would say there are a number of plausible pathsto have a soft as I said softish landing. Our job isn’t to handicap the odds,it’s to try to achieve that.” Ultimately, however, Powell accepted that “therecould be some pain involved to restoring price stability.”
Retail Sales Hold in April
Yesterday’sUS retail sales for April were a little better than expected, showing resilienceamong the US consumer base. While headline inflation was a little lower thanexpected at 0.9% vs 1% forecast, core inflation rose to 0.6%, well above the0.4% forecast. Given soaring inflation, these figures might have been a lotworse and, month on month, saw spending outstrip inflation, which rose just0.3% last month.
TechnicalViews
DXY
DXYcontinues to correct lower from the test of the bull channel top. With theindex now back below the 104.03 level the focus now is on whether support at102.99 can hold. Given the strong bearish divergence into recent highs, risks ofa downside break are growing. If seen, focus will be on a test of the 100.93level and channel low next.
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With 10 years of experience as a private trader and professional market analyst under his belt, James has carved out an impressive industry reputation. Able to both dissect and explain the key fundamental developments in the market, he communicates their importance and relevance in a succinct and straight forward manner.