Jerome Powell’s comments send US stocks sharply lower, while the dollar surges to a three-month high
Singapore — Asian shares fell sharply on Wednesday, while the dollar advanced after hawkish comments from Federal Reserve chair Jerome Powell raised the possibility of the US central bank returning to large rate hikes to tackle sticky inflation.
MSCI’s broadest index of Asia-Pacific shares outside Japan was 1.72% lower and was on track for its biggest one-day percentage drop in a month. Australia’s S&P/ASX 200 index fell nearly 1%, while Japan’s Nikkei was the sole stock index in Asia with gains, up 0.3%. After a series of jumbo hikes last year, the Fed raised rates by 25 basis points in its last two meetings.
Markets are now pricing in an almost 70% chance of a 50 bps hike at the Fed’s March 21-22 policy meeting, according to CME’s FedWatch tool, up from about a 30% a day ago.“Powell has essentially opened the door to [a] 50 bps hike,” said Chris Weston, head of research at Pepperstone. A closely watched part of the US treasury yield curve measuring the gap between yields on two- and 10-year treasury notes, seen as an indicator of economic expectations, was at -107.6 bps, its deepest since August 1981, according to Refinitiv data. Such an inversion is seen as a reliable recession indicator.
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.Citi strategists said even as-expected payrolls and inflation data could keep the chance of a 50 bps hike high. “Not following through on a 50 bps increase could then entail an unhelpfully large easing of financial conditions.”
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