Market Drivers – US Session – Monday 21 March

Mohamed Abdelhamid 22 March, 2022 3:21 am Commodities, Forex Market, Global Stock Market, Market Update

The USD started the American session on the back foot but gradually strengthened following hawkish comments by US Fed Chair Jerome Powell. Speaking about the economic outlook at the National Association for Business Economics Annual Economic Policy Conference, Powell said that if they need to raise fed funds rate by more than 25 bps at a meeting or meetings, they will do so, adding that in times when circumstances change swiftly, Fed predictions might become out of date soon.

Economic Data

No significant economic data acted as noticeable market drivers during Monday’s North America session.

Other Developments

Powell noted that the central bank is focused on restoring price stability while maintaining a healthy labor market. However, he added that “inflation is much too high” and that a reduction of the balance sheet could come as soon as the May meeting, but no decision has been made.

Fed Funds Futures imply traders see a 60.7% chance of the Fed raising rates 50 basis points in May, up from about 52% before Powell’s comments.

The crash of a Boeing jet in China sent the company’s shares down 5.6% at one point Monday, signaling a test of investor confidence just as the plane maker was starting to put a number of crises in its past.

Until what exactly happened is revealed, sentiment materially will worsen for Boeing shares. Boeing is in contact with the US National Transportation Safety Board and technical experts are prepared to assist with the investigation led by the Civil Aviation Administration of China.

Wall Street edged lower while government bond yields soared. The yield on the 10-year Treasury note peaked at 2.30%, while that on the 2-year note hit 2.12%. Among US indexes, the S&P posted a tepid decline, while the DJIA was the worst performer, down over 300 points.

Other Fed officials came out with hawkish comments. Richmond Fed President Thomas Barkin said the US economy is no longer in need of aggressive Fed support and that supply chains, the virus and now the war are all still impacting inflation. On the other hand, Raphael Bostic said that the increased uncertainty has reduced confidence and is now appropriated to move into a highly aggressive rate path. He predicted six rate hikes for this year and two more in 2023.

The EUR/USD pair hovers around 1.1010, while the GBP/USD pair trades at around 1.3150. AUD/USD battles around 0.7400 while USD/CAD trades near a fresh low of 1.2564, helped by rising gold and oil respectively.

Eastern Europe war is keeping western leaders on their toes. Concerns rotate around the European dependence on Russian energy affects economic growth in the Union, with massive sanctions in the middle.

Government bond yields are on the rise as speculative interest fears inflation will heat up further on the back of soaring oil and gas prices. The German government said it maintains its position that the country cannot function without Russian oil imports.

Russia’s Deputy PM Novak said that crude oil price might rise to $300 a barrel if Russian oil is shunned, but that’s unlikely. The commodity soared, with WTI now trading at around $110.00 a barrel.

Gold started the day with a soft tone but managed to post modest gains, now changing hands at around $1,930 a troy ounce.

Late Monday, US President Joe Biden warned CEOs to protect their companies against potential cyberattacks and urged them to invest more in cybersecurity. The news adds to the Western hard stance against Russia and flagging of risk-off mood ahead. In reaction, the Wall Street benchmarks closed in the red territory while Antipodeans remain pressured during the early Asian session on early Tuesday.