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LearningEND OF DAY REPORT March 7th

FED Chair Powell says nothing about the data suggests we've tightened too much and rather suggests have more work to do; data so far suggests they will have a higher terminal rateMorning Market Report - 8 March 2023

Darren Krett

Tuesday, 7 March 2023

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END OF DAY REPORT March 7th

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HIGHLIGHTS

-	North Korean Foreign Ministry says "The danger of a nuclear war on the Korean peninsula turns from fantasy into reality because of Washington and 
         Seoul", via Al Jazeera
-	The White House will propose raising taxes on Americans earning more than USD 400k and reducing what Medicare pays for prescription drugs "in an 
        attempt to ensure that the health-care program for seniors is funded for the next two decades", WaPo reports
-	Fed Chair Powell says hard to make the case we've overtightened; very mindful of lags
-	US Senate Republican Leader McConnell says the Biden tax plan on Medicare will not see the light of day in the House
-	Fed Chair Powell says if incoming data indicates faster tightening is required,
-	Fed is prepared to increase pace of rate hikes; says ultimate level of interest rates is likely to be higher than previously anticipated
-	Fed would be prepared to increase the pace of rate hikes continues to make decisions meeting by meeting
-	Fed will continue to anticipate that ongoing increases in the target range for the federal funds rate will be appropriate, if the totality of the 
        data were to indicate that faster tightening is warranted, we would be prepared to increase the pace of rate hikes.
-	INFLATION: There is little sign of disinflation thus far in the category of core services excluding housing
-	TERMINAL RATE: Ultimate level of interest rates is likely to be higher than previously anticipated
-	Restoring price stability will likely require that we maintain a restrictive stance of monetary policy for some

SUMMARY

Fed Chair Powell, in his prepared remarks to Congress, said if incoming data indicates faster tightening is required, the Fed is prepared to increase the pace of rate hikes, warning that the ultimate level of interest rates is likely to be higher than previously anticipated given the string of hot January data. 

That served as a marked, hawkish shift from Powell's presser at the February 2nd FOMC, where the FOMC minutes revealed, "[many] participants observed that a further slowing in the pace of rate increases would better allow them to assess the economy’s progress", sending yields and the Dollar higher and weighing on stocks given the Fed Chair leaned on the hawkish side of broader commentary from Fed officials in recent weeks. Powell reaffirmed concerns in his remarks that there is little sign of disinflation thus far in the category of core services excluding housing, noting price stability would require a fall in this sector as well as very likely requiring some softening in labour market conditions. 

Powell's subsequent Q&A, where he was more often than not the subject of a political grilling rather than an economic debate, didn't provide much incremental information for market participants, with the Fed Chair sticking largely to status quo Fed commentary, stressing data dependence ahead of the March 22nd FOMC.

 The kicker from today is that Powell has put 50bps and a higher terminal rate dot meaningfully in play for March, depending on the February data, whereas before the debate was more tangential given Fed Speak on the matter was largely spewed by regional Fed presidents, rather than the more influential Board of Governors.
 
Treasuries saw pronounced flattening as Powell put a 50bps March hike and higher terminal rate in play with 10yr cash peaking today around 4.01%

Equities not perorming much better with SPX -1.53% at 3,986, NDX -1.22% at 12,152, DJIA -1.72% at 32,856

What came out today;

numbers-out-mar-7

On the ticket tomorrow;

mar-8

snapshot-mar-7

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