Powell Speaks, the Market Tilts
How Much More Downside?
The Precursor
Stocks hit a brick wall on Tuesday as Fed Chair Jerome Powell gave his semiannual congressional testimony on monetary policy.
In a particularly potent statement he said, “The latest economic data have come in stronger than expected, which suggests that the ultimate level of interest rates is likely to be higher than previously anticipated. If the totality of the data were to indicate that faster tightening is warranted, we would be prepared to increase the pace of rate hikes.”
“Powell hit the market right between the eyes saying if the economy is flying high and moving faster this year, then monetary policy will have to follow with faster and higher rates if they are going to have any chance at bringing inflation down. The market heard the word ‘faster’ and that was all they needed to price in a greater chance of a 50 bps rate hike in two weeks.”
~ Chris Rupkey, Chief Economist at FwdBonds.
The odds of a 50bps increase at the March 22 meeting now sits around 64% from just 31% on Monday. This remains a headwind for risk assets.
Latest Economic Data
US Job Openings (JOLTS)
- 10.824M vs 10.5M consensus and 11.234M prior
The number of job openings in the United States fell by 410,000 to 10.824 million in January 2023 from an upwardly revised 11.234 million in December, compared to market expectations of a 10.5 million decrease (Source).
US Job Quits (JOLTS)
- 3.884M and 4.091M prior (lowest since May 2021)
US ADP Employment Change
- 242K vs 200K consensus and 119K prior
Private businesses in the US unexpectedly created 242K jobs in February of 2023, well above an upwardly revised 119K in January and market forecasts of 200K. This was led by the services sector (+190K) jobs, leisure and hospitality (+83K), and financial activities (+62K) (Source).
Initial Jobless Claims
- 211K vs 195K consensus and 190K prior
The number of Americans filing unemployment benefits jumped by 21,000 from the previous week to 211,000 on the week ending March 4th, the most since December 2022 and well above market expectations of 195,000.
The latest value was the first upside surprise in one month, diverging from a series of labor data that underscored a stubbornly tight job market and hinting that labor conditions could start to soften (Source).
Nonfarm Payrolls – Friday
Keep in mind the NFP report, along with unemployment rate and average hourly earnings out early Friday morning. The market has already suffered enough this week, so unless numbers come in well above consensus, it may already be baked in.
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Technical Analysis Corner
Bitcoin Daily Chart
Today bulls failed to hold key support in the 21500 area which led to a further cascading selloff. Price is now at 20k support, but the major level defined by the volume profile is around 19170. Break below that and there’s an air pocket down to 16800.
The downfall of Silicon Valley bank Silvergate, which had ties to the FTX fallout, continues to provide FUD fuel to the markets.
Bitcoin 4H Chart
The 4H is heavily oversold, with RSI nearly touching the single digits earlier. That said, there are no divergences showing up yet. I use BPRO as my guide for divergence strength, and the best conditions to long are oversold + bull div. The gray shaded areas below may come into play on further weakness.
S&P500 Daily Chart
My S&P500 chart isn’t fully cooked yet, although that close below the 200MA is short-term concerning. A lack of bear follow-through and reclaim of the diagonal would be appreciated, and a close back above the 50MA would show good strength.
Remember some of this move is FUD-driven, and we haven’t heard the Fed’s decision on the March rate hike yet. The market may be over-reacting.
DXY Daily Chart
The good news is that we’ve tapped the swing level I’d been anticipating for a while. There’s also been somewhat of a rejection there. This needs to be the local top for the dollar index, or we can expect more pain for risk assets. A pullback toward the red line would give everything some breathing room.
Jay Charles
Editor in Chief, The Trading Tank.
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