Stock index futures pointed to a higher open Tuesday and yields dipped as investors waited to hear from Fed chief Jerome Powell for the first time since his decision-day presser.
“Markets got the week off to a ‘scary spice’ start yesterday, with bonds and equities both soft, especially bonds,” Deutsche Bank’s Jim Reid said. “That was driven by growing doubts among investors about whether inflation would come down as hoped over the coming months, which in turn saw them price in a much more aggressive pace of rate hikes from central banks.”
“Indeed, expectations of the Fed’s terminal rate for this cycle hit the first new high of the cycle since early November with the July contract ending yesterday with an implied rate of 5.157%, up from 4.81% at the recent lows last Wednesday,” Reid said.
“Clearly any implication that there are upside risks to the Fed’s rate outlook would validate the shift in market pricing over the last couple of days,” Reid said.
Powell will speak at noon ET at the Economic Club of Washington, D.C.
“It would be helpful to hear an assessment of what the Fed actually thinks is happening given structural economic changes, cyclical impulses, and poorer quality data,” UBS’ Paul Donovan wrote. “An explanation of how the Fed thinks higher rates will change profit-led inflation would also be nice. Instead, we are likely to get unhelpful platitudes; ‘Payrolls high. Hike, hike, hike.'”
Before the bell, December import and export figures arrive, with the trade balance expected to widen to $68.5B.