High Volatility

March 07, 2023 • Estimated Reading Time: 5 minutes

Macro Markets

FOMC

Chair Powell had his hearing in front of the Senate Banking Committee on Tuesday. Markets saw more cuts as several senators questioned them on various topics. Powell said the Federal Reserve is likely to increase interest rates higher and potentially faster than previously anticipated with inflation persisting, an unexpectedly aggressive posture following last month’s step down in the pace of hikes. This was the first showing by Powell since we saw a spike in inflation data after all metrics were trending lower. This is also after the substantial increase in payroll jobs for the month.

We saw yields moving up across the board with the curve flattening further. Stocks dropped on the news, paired with crypto under pressure as well. Fed funds futures saw March price a 50bp hike with a 65% probability as well on the back of it. The market is now looking at rates peaking close to 5.6% this year, up from about 5.5% before Powell spoke.

We will most likely see Dots move higher at the next FOMC as Powell expects higher for longer. This should keep risk market under pressure for longer unless data changes. We do expect data after Q1 to start showing its trend lower again across the board but for now we will look for FOMC to see the next piece of guidance from the fed on March 22nd which will include their views after getting next Payroll numbers and CPI.

Payrolls Friday

The US non-farm payrolls will be the focus for the global markets. After the shock to the upside with 500k+ jobs in January we will be getting the February employment data this Friday. This will be the biggest driver of market movement as we won't have a Fed meeting after March till May, and this will be the only employment data they will have for potentially guaranteeing a 50% move. Economists polled are expecting an increase of 200,000 jobs in February, compared with the much stronger-than-expected 517,000 jobs reported in January.

Look to Wizards Weekly Musings section to get positioning and trading strategy for the week based on these events.

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