NAS100 Tries to Find its Footing after Powell-Fueled Drop, But the NFPs Loom
NAS100 Analysis
In his press conference after February's 0.25% rate increase by the Fed, Chair Powell was hawkish, but not forceful. Furthermore, he talked a lot about the "disinflationary" process that is underway and which has allowed officials to slow the pace tightening. [1]
He also largely maintained the same stance and tone a few days later at the Economic Club of Washington [2], despite the intervening blockbuster jobs report of February 3 that had led to a hawkish repricing in market expectations around the terminal rate.
The latest inflation data showed that PCE picked-up again in January, casting doubt over Mr Powell's disinflationary narrative and providing the grounds for a more hawkish stance this week's two-day Congress testimony.
In his opening remarks on Tuesday, he was indeed more aggressive, noting that recent stronger than expected data suggest, "the ultimate level of interest rates is likely to be higher than previously anticipated". More to it, he opened the door to an acceleration in the pace of rate increases, warning of "faster tightening" if dictated by the economic indicators. [3]
This sent NAS100 lower on Tuesday, as Mr Powell's remarks caused another market repricing around the Fed's policy path. CME's FedWatch Tool now assigns the highest probability to a hike of 0.5% at the next meeting (from 0.25% previously) and to a terminal rate of 5.75%, implying a 100 points worth of hikes. [4]
At his second hearing on Wednesday, Chair Powell softened his stance a bit, stressing that "we have not made any decision about the March meeting" [5], which will depend on incoming data. Markets now brace for Friday's employment report, at the last day before the communication blackout period kicks in, while on Tuesday we anticipate another CPI inflation update. These will weigh on the central bank's next policy decision, having the potential to spur volatility and determine the trajectory of the stock market.
The hawkish remarks and the higher market expectations around the Fed's next move and the terminal rate, pose headwinds for NAS100. There is risk for fresh monthly lows (11,810), but strong catalyst would be required for further losses below the broader 11,500 region.
On the other hand, the tech-heavy index has shown resiliency to the enhanced higher-for-longer prospects and defends the EMA200. As such, new weekly highs seem reasonable, but NAS100 does not inspire confidence for strength past 12,900 given the current monetary policy outlook.
Nikos Tzabouras
Senior Market Specialist
Nikos Tzabouras is a graduate of the Department of International & European Economic Studies at the Athens University of Economics and Business. He has a long time presence at FXCM, as he joined the company in 2011. He has served from multiple positions, but specializes in financial market analysis and commentary.
With his educational background in international relations, he emphasizes not only on Technical Analysis but also in Fundamental Analysis and Geopolitics – which have been having increasing impact on financial markets. He has longtime experience in market analysis and as a host of educational trading courses via online and in-person sessions and conferences.
References
| Retrieved 08 Mar 2023 https://www.federalreserve.gov/monetarypolicy/fomcpresconf20230201.htm | |
| Retrieved 08 Mar 2023 https://www.youtube.com/watch | |
| Retrieved 08 Mar 2023 https://www.banking.senate.gov/hearings/02/28/2023/the-semiannual-monetary-policy-report-to-the-congress | |
| Retrieved 08 Mar 2023 https://www.cmegroup.com/markets/interest-rates/cme-fedwatch-tool.html | |
| Retrieved 09 Jun 2023 https://www.banking.senate.gov/hearings/02/28/2023/the-semiannual-monetary-policy-report-to-the-congress |
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