Treasury yields rise on Powell, claims data due, and another big day for central banks.
The yield on the 10-year Treasury hit 1.74% this morning as market reaction to yesterday's Fed decision and press conference from Chair Jerome Powell continues. The bank signaled no rise in rates through 2023 and Powell again emphasized that policymakers would wait for clear evidence the U.S. economy has fully healed from the pandemic. With the Fed risking allowing policy to fall behind the curve, investors are showing signs they are worried about inflation.
The weekly check on the labor market from initial jobless claims at 8:30 a.m. Eastern Time this morning is only expected to show small progress on that front. Economist estimates suggest 700,000 people filed for benefits last week, with continuing claims holding above 4 million. The data comes after the Covid-19 relief package agreed last week means enhanced unemployment benefits will continue, while stimulus payments are distributed to most Americans.
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As the market continues to digest yesterday's Fed decision, investors will also need to keep an eye on a raft of central bank moves in the next 24 hours. Turkey's monetary policy makers are expected to hike rates to 18% when their latest decision is announced at 7:00 a.m. In the U.K., the Bank of England is likely to stick closer to the Powell hymn sheet, emphasizing that the bar for tightening policy is very high when the latest policy announcement is made at 8:00 a.m. The Bank of Japan is expected to tweak its bond yield management and asset purchases at its meeting overnight.
There is a clear divide in global markets this morning between investors bullish on growth and those worried about rising yields. Overnight the MSCI Asia Pacific Index added 0.8% while Japan's Topix index closed 1.2% higher. In Europe, the Stoxx 600 Index had gained 0.3% by 5:50 a.m., with Germany's Dax hitting an all time high on rallying automakers. It is a different story in the U.S. where S&P 500 and Nasdaq futures pointed to a drop at the open. Oil was lower and gold slipped.
The Philadelphia Fed Business Outlook and the USDA WASDE report accompany jobless claims at 8:30 a.m. Powell speaks at the close of a BIS conference at 11:55 a.m. The EU medicines regulator is expected to announce its decision on the AstraZeneca Plc vaccine. President Joe Biden will make an announcement on U.S. vaccine progress. Nike Inc., FedEx Corp. and Dollar General Corp. are among the companies reporting results.
What we've been reading
Here's what caught our eye over the last 24 hours.
And finally, here’s what Joe's interested in this morning
Sometimes in a sports game you see a particularly elegant play. And it looks spontaneous. But then you realize it was only possible because of some positioning that had been done several moments earlier. And of course beyond that it was only possible because the team had done so much practice beforehand.
Yesterday, despite all the hype going into the event, Fed Chairman Jay Powell had a very easy press conference driving home the Fed's commitment to holding rates low until various economic targets have been achieved. Despite rising rates and questions about the strategy, basically nothing he said bothered the market or threw him off or anything like that. In a note to clients yesterday, Neil Dutta of Renaissance Macro wrote that he thought it was "Powell's best presser ever."
The reason he was able to deliver the message clearly is because there was a lot of preparation for it, going back months or years. As the Fed has been talking about for a long time now, going back at least to last summer's Jackson Hole conference, there's no plan to raise rates until some very clear policy goals have been achieved. It wants to see maximum employment and evidence of sustained higher inflation. That's it.
All the Fed has to do to execute its strategy is to do nothing until the real economy hits those benchmarks. There's no complicated messaging about asset purchases. No weird twists. No need to talk about academic models that say when inflation might at some point pick up based on some level of the headline unemployment rate. It's just a matter of waiting.
If the economy continues to accelerate, then the first rate hike will come into view sooner. If the economy slows down for whatever reason, then the first rate hike will automatically get pushed back. If the economy slows down dramatically, then expectations for the first rate hike will get pushed back even more. It's a self-adjusting policy that makes press conferences and messaging pretty easy, and yesterday showed that pretty clearly.
Joe Weisenthal is an editor at Bloomberg.
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