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Powell fails to stem the tide as crude surges

Tesla, man and machine

Dovish commentary from the chair of the Federal Reserve was not enough to stop the ongoing rise in bond yields and consequent selling in stock markets. Mr Powell noted the recent falls in bond prices, but gave no indication of Fed intervention. Crude oil and related energy products were the only growth exposed markets to record overnight gains after OPEC+ group extended their production cuts into April.

US ten year bonds are now above 1.5%, a sharp contrast to the sub 0.5% yields seen in 2020. The move overnight appeared to defy Mr Powell’s comments that the US economy is a long way from where he’d like to see it, and that inflation will rise towards 2% before falling away again. The schism between Fed commentary and market action suggests jawboning markets on this issue is ineffective.

While rising interest rates affect every market, high-flying technology stocks and gold prices are notable losers. Cryptocurrencies were also swept down overnight, after previously outperforming. A lift in the US dollar points to rising risk aversion.

Base metals were hit hard, but crude oil provided a bright spot for risk with gains of 4% to 5% for most grades. The OPEC+ group surprised traders with an extension of the current production cuts into April. The news comes on top of this week’s record drawdown of US gasoline inventories, providing positive news on both the supply and demand sides of the oil market equation.

Regional markets are set for a cautious opening, having dropped hard yesterday. Data after the Asia Pacific close could be highly influential, and investors may trim positions today ahead of the releases. US non-farm payrolls are forecast to grow by 190,000 in February, keeping the unemployment rate at 6.3%. China trade data due on Sunday is expected to bounce hard, with consensus forming around a 39% lift in exports and a 16% lift in imports once the weaker yuan is taken into account. Traders are on alert for any “good news is bad news” impacts.

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