How did Powell upset the markets?

20 December, 2018

Equity investors didn’t like what they heard from Fed Chair Jerome Powell on Wednesday. After trading more than 350 points higher intraday, the Dow Jones Industrial Average took a dive after the Federal Reserve raised interest rates and continued to decline throughout Powell’s press conference, in one of the worst market reactions to an interest rate hike in more than two decades. Tech and Consumer Discretionary sectors were hit the most driving the S&P 500 1.54% lower for the day, and the heavy weighted Tech index, the NASDAQ Composite, ended the day 2.17% lower.

The decision to raise interest rates by 25 basis points was widely anticipated and priced in most asset classes, so it is not the rate hike itself that upset investors. Investors were expecting a more dovish tone from Powell given the sharp fall in equity markets and challenging global macroeconomic conditions. All they got was a less hawkish tone.

Despite many signs of global economic growth slowing, the Fed does not seem to be very concerned at this stage suggesting that monetary policy will continue to tighten albeit at a slower pace than previously projected. What appeared to be even more concerning to equity investors is that Powell is not only ignoring Trump’s calls to pause the tightening cycle, but he is also not listening to them. In answering a journalist’s questions related to market volatility, Powell said that “we don’t look at any one market. We look at a really big range of financial conditions and what matters for the broader economy is material changes in a broad range of financial conditions that are sustained for a period of time”.

Powell’s answer may simply be interpreted as not to expect a ‘Powell Put’ to save equity markets from further declines. That is likely to continue hurting market confidence which over the past decade relied so heavily on monetary policymakers to intervene when asset prices plunge.

Another concern for financial markets is the unwinding of the Fed’s balance sheet. Powell mentioned that balance sheet reduction would remain on autopilot, suggesting that the Fed is inflexible in this regard. That’s likely to lead to continued tightening of financial conditions, which could lead to further downside risk.

Markets are just not convinced that growth is as strong as projected by the FOMC, otherwise we wouldn’t have seen the 10–2 Year Treasury spread shrinking below ten basis points today. With such conditions, expect risk to remain skewed to the downside for the few remaining days of 2018.


Source link  
Equities higher as China GDP slows

Investor appetite to risk remains on the rise today, with equities in green across Asian markets. The slowdown in China's economy will not impact...

From worst Eve to best day in a decade

Santa arrived a little later than expected this year. At one point investors thought Santa would never show up with markets in red and bears not letting go...

Equity investors doubting trade truce

The relief rally led by the US-China trade war truce didn't last long. Investors in Asia were seen taking profits from Monday's bounce in equities...


Global markets surge on trade truce hopes

Optimism over the temporary trade truce announced between the United States and China after the G-20 summit in Argentina last weekend has played...

Fed commitment supports Greenback

Reinforced expectations over higher interest rates in the United States after the Federal Reserve provided a consistent narrative that policymakers...

Rupiah manages to withstand Dollar drive

Improved risk appetite and an improved attitude towards global stock markets have helped support a number of different APAC EM currencies...


Equity sell-off resumes in Asia

The steep sell-off in U.S. equity markets suggests October could be the worst month since the global financial crisis of 2008. Seven trillion...

Sea of red across global equity markets

October has been a terrible month for equity investors so far. The S&P 500 and Dow Jones Industrial Average fell into negative territory for the year...

Italian budget, ECB meeting, US GDP

Asian shares were mostly higher this morning as Chinese indexes rallied more than 4% on verbal support from the country's top officials. Although the positive...


In the past 24 hours Bitcoin has lost -0.19% and reached $3599.17406438. Open your trading account with the best cryptocurrency brokers on special terms today.

In the past 7 days the EUR/USD pair has gained 1.5351% and is now at $1.1563. Start trading and making money on Forex today.

In the past 7 days Ethereum has lost -4.83% and is now at $118.130634428. Have the most popular cryptocurrencies compared online 24/7.


Top Brokers offering Daily Forex Market Reviews


Forex Currencies Forecasts


Top 10 Forex Brokers 2019

# Broker Review
1easyMarketseasyMarkets91%
2FXTMFXTM87%
3HYCMHYCM86%
4FxProFxPro84%
5FIBO GroupFIBO Group83%
6OctaFXOctaFX82%
7HotForexHotForex81%
8FXCMFXCM80%
9XMXM72%
10FP MarketsFP Markets69%
  


Share: