Morning Brief – Market in positive mood

Stocks remain well supported and the US dollar continues to edge lower after Federal Reserve Chairman Jerome Powell said Tuesday that disinflation “has begun” but is going to take time.”

Markets latched onto Powell’s words and briefly turned positive, before flipping back to negative after he cautioned about stronger-than-expected economic data.

After a big rally on Wall Street, yesterday futures markets are pointing to more strong gains today, with the Nasdaq leading the way. European markets have also started strongly.

Powell spoke in a question-and-answer session at the Economic Club of Washington, D.C., with Carlyle Group co-founder David Rubenstein.

The Fed Chair spoke at a sensitive time as investors are hoping the Federal Reserve soon will halt the aggressive interest rate hikes it began last year.

Powell noted, “If we continue to get, for example, strong labour market reports or higher inflation reports, it may well be the case that we have to do more and raise rates more than is priced in.”

The Fed also said that it expected the labour market to soften, which does not give confidence to the fact believe the US economy is on a stable footing just yet.

Probably the other most notable comment was “We expect 2023 to be a year of significant declines in inflation. It’s actually our job to make sure that that’s the case.”

And speaking about timing inflation Powell said “My guess is it will take certainly into not just this year, but next year to get down close to 2%.”

Next week’s CPI report is likely to have a significant impact on the market, and as such any large shocks in expectation, positive or negative, will cause market price volatility.