Macro Roundup (Mar 19)

SHANGHAI, Mar 19 (SMM) — This is a roundup of global macroeconomic news last night and what is expected today.

The dollar climbed broadly on Thursday, as higher U.S. Treasury yields helped it retrace all its losses from the previous session following the Federal Reserve's pushback against market expectations of potential interest rate hikes.

The US dollar index was 0.53% higher at 91.853, after falling 0.56% to a two-week low of 91.30 earlier in the session.

The US economy is heading for its strongest growth in nearly 40 years, even as central bank policymakers are pledging to keep their foot on the gas despite an expected surge of inflation, the Fed said on Wednesday.

While inflation is expected to jump to 2.4% this year, above the central bank's 2% target, Fed Chair Jerome Powell said that is viewed as a temporary surge which will not change the Fed's pledge to keep its benchmark overnight interest rate near zero.

“Markets are playing chicken with the Fed, betting that the central bank's reaction function will evolve once today's ultra-dovish policy stance succeeds in generating above-target inflation,” said Karl Schamotta, chief market strategist at Cambridge Global Payments.

On Wall Street, US stock futures were mostly flat on Thursday evening as Wall Street looked to shake off a broad sell-off during market hours.

Futures contracts for the Dow Jones Industrial Average rose 5 points, while those for the S&P 500 were little changed. Futures for the tech-heavy Nasdaq 100 also hovered near the flat line.

The moves come after the stock market struggled on Thursday, with tech stocks being particularly hard hit. The Nasdaq Composite fell 3%, with Apple and Amazon seeing slightly larger losses. The Dow and S&P 500 slipped 0.5% and 1.5%, respectively.

The weakness in stocks was mirrored by a spike in bond yields, with the benchmark 10-year Treasury yield breaking above 1.7%, its highest level since January of last year. Yields move inverse of prices. Rising bond yields, which can signal confidence about the economic recovery and fears about inflation, make high growth stocks look less attractive to investors.

Oil prices sunk for a fifth day running on Thursday on a stronger dollar, a further increase in U.S. crude and fuel inventories and the weight of the ever-present COVID-19 pandemic.

Brent crude slid 6.94% to settle at $63.28 per barrel. U.S. oil settled 7.12%, or $4.60, lower at $60 per barrel, after shedding 0.3% in the previous session. Both contracts are down 6% over the past five days.

“Short-term developments - stuttering vaccine rollouts and the build in U.S. oil inventories - are driving sentiment, but the longer-term oil outlook is still encouraging,” said PVM Oil Associates analyst Tamas Varga.

“Yesterday’s US Federal Reserve meeting provided a boost to equities ... U.S. economic growth has been revised upwards while unemployment is expected to decline.”

A sharp rise in the value of the dollar after the Fed meeting has also driven the oil sell-off.

Gold prices dropped on Thursday as a surge in US bond yields and a firmer dollar hammered bullion’s appeal, while palladium jumped as much as 7% on strong demand prospects amid supply disruption worries.

Spot gold was down 0.7% at $1,732.99 an ounce, after touching its highest since March 1 at $1,755.25. US gold futures settled up 0.3% at $1,732.50.

The benchmark US 10-year Treasury yield vaulted above 1.74% for the first time since January 2020, while the dollar rose 0.5%.

Federal Reserve Chairman Jerome Powell on Wednesday repeated a pledge to hold interest rates near zero in an effort to keep the economic recovery on track even if inflation breached its 2% target this year.

“Yesterday’s Powell comments on interest rates were very supportive for gold, but on the other side of the coin the fact that 10-year yields continue to rise has limited any upside in gold,” said Bob Haberkorn, senior market strategist at RJO Futures.

UK Gfk Consumer Confidence Index for March will be released today.