Powell’s Comments Are All That Matters
It’s not a summer slump that’s keeping volatility low, it’s the upcoming address by Federal Reserve Chairman Jerome Powell to the U.S. Congress that has traders on edge. The dollar index hit a three-week high of 97.588 .DXY on Tuesday before easing slightly. During early morning Asian trade on Wednesday the dollar index was up 0.05 percent to 97.54 .DXY as Treasury yields were pushed higher due to concerns that the expected U.S. interest rate cut would be postponed past July.
Powell’s testimony to Congress will begin on Wednesday and is expected to take two days. Original predictions for an interest rate cut of 50 basis points have nearly disintegrated, but analysts are still hopeful for a cut of 25 basis points this month. The dollar is likely to continue its rise if Powell’s comments are construed as hawkish, or even neutral, but it will likely fall if his comments turn dovish (as unlikely as analysts think this is).
Wall Street ended mixed on Tuesday, with the Dow Jones Industrial Average easing 0.08 percent, but the S&P 500 and the NASDAQ ending up 0.12 percent and 0.54 percehigher respectively. Asian benchmarks took cues from Wall Street, trading mixed during Wednesday morning’s session. As of 10:00 a.m. HK/SIN, the Nikkei 225 was down 0.06 percent and the Shanghai Composite was down 0.09 percent. Hong Kong’s Hang Seng Index gained 0.46 percent as was South Korea’s Kospi. The Shenzhen Composite remained flat.
According to reports by CNBC, top U.S. and Chinese trade officials spoke on Tuesday in an effort to advance the trade deal between the two countries. At a recent CNBC event, top White House economic advisor Larry Kudlow commented that there is “no timeline” on the negotiations and that the focus of the talks will be on “quality not speed.” No significant progress (or setback) has been announced since the meeting between U.S. President Donald Trump and Chinese President Xi Jinping at the G-20 summit.