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Feds Powell talks of possible higher peak in rates

Good morning

Powell remains reasonably hawkish, talking of strong job market numbers and the need for more rate rises with perhaps a higher peak and certainly high rates for a long time. Powells comments led Morgan Stanley to add in an additional 25bps rate rise in May to their forecast which lifts their peak rate forecast to 5.25%.

However Powell did say the Fed decisions remain dependent on incoming data and perhaps the market was relieved he was not even more hawkish after the employment data Friday, instead welcoming the fact inflation is coming lower without, it seems, damage to the labour market. US dollar is weaker following his comments, with GBPUSD now 1.2100 and EURUSD 1.0755 although gold has not taken advantage of the weaker dollar, now $1880. GBPEUR has been lifted to 1.1250, a decent recovery from the 1.1140 lows last week. It will be interesting to see whether we can hold these gains or whether we are seeing better levels to get downside GBPEUR positions in place.

ECBs Schnabel said she’s looking for another 50bps rate rise in March, we hear from ECBs Know later today who usually errs on the hawkish side. BoCs Macklem yesterday confirmed BoC will not be looking at new rate rises unless incoming data is well out of line with their forecasts.

A light calendar data-wise but plenty of central bank speakers mostly from the Fed.

In other news, we of course have another rise in the Turkey/Syria earthquake death toll and there is little doubt this will rise further, with bitterly cold weather not helping the rescue efforts. In Ukraine, still talk that Russia are preparing for a new offensive as it is reported that Zelensky will arrive in the UK today to meet PM Sunak and make a speech in Parliament.

US/China relations aren’t looking good after the China spy balloon saga, although the Chinese insist it was a weather balloon blown off course. The US have recovered part of the balloon but will hope to gather more of the actual equipment to see what technology the Chinese are using and what they were actually looking at.

I hadn’t realised how big the balloon was, but US say it was some 60 metres tall, roughly the same as a 20 storey building and that the equipment it carried was similar in size to a decent sized aircraft. I’m surprised they shot it down rather than find a way to slow its descent to retain as much of the equipment as possible, but I presume there was a need to bring it down while it was still in US airspace. Anyway, I look forward to learning more about it, if we ever do.

Not much more to add from me this morning. Its another cold morning here, looks like it might warm up heading into the weekend,

- 14.20 Feds Williams speaks

- 14.30 Feds Cook speaks

- 15.00 Feds Barr speaks

- 15.00 ECBs Know speaks

- 17.30 Feds Kashkari speaks

- 18.45 Feds Waller speaks

- 00.30 AUS NAB business confidence

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