Daily Market Outlook, March 8, 2023

Hawkish Powell Hobbles Risk Sentiment

Asian markets followed Wall Street lower on a Fed Chair fuelled sell off in global equities, with the benchmark SP500 seeing its biggest losses in two weeks shedding over 1.5% on the day, as the 2/10s US treasury yield inversion marked its highest levels since the 1980’s, leading investors to flee risk exposure for the safety of government debt as the US 2yr yield topped 5% overnight, with markets now pricing a 50bps March rate hike, as the greenback soared to a three month high on a renewed safe haven bid, at the same time Gold was clattered printing a $40 drop on the day.

The data docket in today’s European session is scant, in the Eurozone Q4 GDP is likely to be revised lower to 0.0% QoQ from the 0.1% estimate, driven by an unexpected contraction in the German release of -0.4%. In the UK, investors will parse commentary from Bank of England MPC member Dhingra who will be speaking on the UK's cost-of-living crisis. Dhingra is regarded as one of the more dovish MPC members, she voted against the decision of the majority at the last policy meeting to increase interest rates.

The main event for markets today will be round two of Fed Chair Powell’s testimony, today the Chair will be back on Capitol Hill appearing in front of the Congress, where he will likely repeat his statement made yesterday, which led to a meaningfully more hawkish repricing in markets. The US February ADP employment report, released later today will top the data docket, providing the first clues as to Friday’s non farm payrolls numbers, although the two data points are rarely perfectly aligned, markets will certainly have an eye on the release, it is noteworthy that ADP has been weaker than official nonfarm payrolls recently, any print at or above 200k for private payrolls would suggest the employment landscape remains tight stateside, adding further fuel to expectations of a larger Fed hike on March 22nd. The JOLTS report will provide a timely update as to job openings in the economy and is a keenly watched data input for the FOMC members, markets expect this number to confirm heat in the US labour market. Rounding out the US employment perspective will be Richmond Fed President Barkin, who is scheduled to speak later today about the US employment market. He recently commented that he believed that the current labour market conditions led him to see a terminal rate in the ballpark of 5.5-5.75% for this cycle.