After the selloff sparked by Fed Chairman Jay Powell’s presentation in Washington, D.C., stock index futures were modestly higher on Wednesday.
Sentiment will probably be influenced by today’s jobs report before Friday’s payroll figures, where a significant increase might truly solidify the perception of a more hawkish Fed in the near future.
S&P futures (+0.3%), Nasdaq 100 futures (+0.4%), and Dow futures (+0.2%) all increased.
The FOMC is willing to accelerate the pace of tightening, according to the Fed chairman’s statement from yesterday, which caused stocks to decline and short-end rates to rise. Fed funds futures have reversed sides and now predict a 74% chance of a 50 bps increase at the next meeting, down from roughly a three-in-four chances earlier in the week.
While Powell testifies before the House Financial Services Committee, “Powell 2: The Hawkening” will be on your televisions. The statement will remain the same, thus the focus is on the Q&A.
According to Jim Reid of Deutsche Bank, it “was another historic day in markets” and the “US terminal has now gone past our street leading 5.6% prediction and closed at 5.624% yesterday night.
The 2-year yield (US2Y) increased 3 basis points to 5.04% while the 10-year Treasury yield (US10Y) remained unchanged at 3.98%. After rising above a full percentage point on Tuesday for the first time since 1981, the 2s10s curve is now inverting even more.
Remember that a recession has either been ongoing or has occurred within a maximum of 8 months on all prior instances (1969, 1979, 1980, and 1981) that the 2s10s has been greater than -100bps inverted since data are available from the early 1940s, according to Reid. “There have only been 7-month end closes lower than -100bps in the 80 years of available data, highlighting the rarity of such an occurrence. So, the air around us is unusual.”
Prior to the bell, February’s ADP private payrolls are released. Economists anticipate a 200K increase. Following the bell, the January JOLTS data was released, with a predicted decrease in openings to 10.5M.
Ian Shepherdson of Pantheon Macro said, “The track record of the brand-new ADP methodology in forecasting the initial estimate of the monthly official private payroll data is disappointing.
He continued, “In our opinion, the JOLTS numbers exaggerate both the level of labor demand and the impact on wage growth.
This afternoon sees the release of the beige book by the Fed on economic activity.
According to Paul Donovan of UBS, The Beige Book is “the financial counterpart of the celebrity gossip publications available at supermarket checkouts (when supermarket checkouts existed)”. “Seasonal adjustments and fictitious ideas like owners’ equivalent rent have no bearing on anecdotal evidence. It is impacted by partisan bias and the media spin cycle.”
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