Daily Market Outlook, February 8, 2023

Powell’s Talking Both Sides Of The Street, Investors Climb The Wall of Worry

Mixed response from Asian equities to Fed Chair Powell’s speech, as Wall Street whipsawed in reaction to what many investors saw as two sided comments regarding the rate path going forward with markets pricing a higher terminal rate, however, Powell once again acknowledged nascent disinflationary signals, most importantly Powell gave little push back on loser financial conditions, this led investors to bid up US equities into the close, the benchmark SP500 ending the day at highs notching up a 1.29% gain closing at 4164. Weak earnings from regional powerhouses Softbank, Sharp & Nintendo (issuing a 10% pay rise to employees, shares down 8% in response) weighed on the NIkkei leading the Shanghai Comp and Hang Seng lower, with all three major indexes nursing losses of circa -0.4%.

With no tier one econ data of note European markets are taking their lead from a robust round of earnings on the continent, the CAC40 in France is the standout performer up 0.4% at the open, as Oil Major Total Energies delivered record break earnings continuing the trend of energy sector players banking the benefits of inflation driven gains in energy prices, while less palatable to consumers and politicians, investors continue to reap rewards. In the UK, the country's premier home builder Barratt Developments issued a H1 update in which they underlined a continued uncertain outlook, hampered by elevated mortgage rates leading to a steep decline in housing demand, however, the property player did announce that buybacks would recommence, helping to send the FTSE to new record highs at the open of trade in London.

In the US, equity futures are in the red pulling back by 0.3%, with no significant econ data on the docket today, investors will once again focus on central bank policy, with a bevy of Fed policymakers on deck this afternoon, including Kaskari,Wiliams, Waller, Barr and Cook, it is expected that they will tow a similar line to Fed Chair Powell, while accepting some signs of disinflation (mentioned 11 times in his speech last night) it remains too early to consider a pause or pivot in rate policy, indeed the heat in the US labour market remains front and centre concern for the central bank as such expect the lean from messaging to be on the ‘higher for longer’ with markets currently pricing a terminal rate at 5-5.25% ahead of next week's inflation data in the US.