Mike Dolan took a look at the day ahead in the U.S. and global markets.
While U.S. President Joe Biden is due to deliver his second State of the Union address late on Tuesday, world markets will be more in thrall due to what his Federal Reserve Chair makes of the increasingly confusing economic picture.
Jerome Powell gave his first speech since the Fed's latest quarter-point interest rate rose last week. It's his first chance to comment on Friday's seemingly blockbuster U.S. employment report for January.
The jobs report was a huge shock for markets that appeared to be comfortable as recently as Thursday that the Fed was signalling peak interest rates ahead and open to easing after that, which has prompted a dramatic repricing of the interest rate space.
Futures markets are now tally with many Fed policymakers for the first time this year and seem to accept the Fed's 'terminal rate' will be above 5% after all. They now price year-end Fed rates higher than the 4.5 4.75% range they are at right now.
There are some doubts about how strong the jobs report was relative to an assumed picture of a tight but gradually weakening labor market, mainly due to potentially misleading data revisions and seasonal adjustments.
Powell's colleagues are already beating the drum louder. According to Atlanta Federal Reserve BankFederal Reserve Bank President Raphael Bostic, the jobs readout means that we have to do a little more work. After a rough start to the week, world stocks and U.S. futures began to improve on Tuesday after the U.S. Treasury yields gave back some wild upswing since the payrolls surprise, ahead of Powell's speech at 1240 EST. The dollar took a breather after it went up by 3% from Thursday's lows.
The Fed was not alone in talking tough. Australia's central bank increased its cash rate by 25 basis points to a decade-high of 3.35% on Tuesday, and reiterated that further increases would be needed, a more hawkish policy tilt than many had anticipated.
The debt ceiling standoff with Congress is something investors will watch as Biden's State of the Union looks at it with one eye on the potentially destabilising debt ceiling standoff with Congress. Biden is expected to insist that raising the debt limit is not negotiable and that U.S. lawmakers should not use it as a bargaining chip. Republican U.S. House Speaker Kevin McCarthy called on Biden to compromise over raising the nation's $31.4 trillion debt ceiling, as the two remain deadlocked over raising the nation's $31.4 trillion debt ceiling.
BP reported last week that it had a record profit following reports from rivals Shell, Exxon Mobil and Chevron.
A 17% decline in Nordic Semiconductor was reported in Europe after it missed fourth quarter earnings estimates and a 15% slump in ams OSRAM after the sensor maker reported a weak first quarter outlook and suspended its 2022 cash dividend.
Key developments that may provide direction to U.S. markets later on Tuesday:
Federal Reserve Chair Jerome Powell, Fed Vice Chair for Supervision Michael Barr, Bank of Canada Chief Tiff Macklem all speak.
U.S. President Joe Biden delivers a State of the Union speech.
U.S. corp earnings are: DuPont de Nemours, Prudential Financial, Omnicom, Enphase Energy, Atmos Energy, Amcor, KKR, Chipotle, Lumen Technologies, Centene, Vertex Pharmaceuticals, Royal Caribbean Cruises, FMC, Fiserv, Gartner, Carrier Global, etc.