Daily Market Outlook, March 7, 2023

China Data Mutes Asian Market Gains As Investors Eye Powell Testimony

Asian markets opened on the front foot following a relatively flat close on Wall Street as markets digested Friday’s gains, US investors were reluctant to extend risk exposure ahead of a heavy back-ended data slate this week. In Asia China data once again put a lid on risk appetite, as Chinese trade data confirmed further contraction on dollar-denominated imports and exports, leading to mixed performance on the Hang Seng and Shanghai Comp. The standout performer in the Asian region was the Australian ASX200 as the Reserve Bank of Australia hiked rates again but the move was accompanied by less hawkish statement which buoyed investor sentiment, as once again markets sense that a pause may be closer than expectations post the previous raise and statement.

Today’s investor focus will be firmly on comments from US Federal Reserve Chair Powell’s semi-annual testimony on monetary policy to Congress. Today’s appearance before the Senate Banking Committee is the first of two days of the Fed Chair headlining central bank speakers, as he will also be on deck before the House Financial Services Committee Wednesday. Markets are poised for commentary that sticks to the script of nascent progress in the current inflation battle, however, much remains to be done to win the war. Markets are currently pricing a 25bp rate rise at the next FOMC policy announcement on March 22nd. The tail risk for investors today, is that if the US central bank intends to hike by more, then today’s testimony provides the platform for Powell to alert market participants to this possibility before the Fed goes into its pre-meeting blackout period. While this remains a possibility the more probable path for Powells performance will be Powell stating that for the time being recent data has done little to materially allay inflation concerns. The market read likely being that the US interest rates path for the year ahead likely has a higher terminal rate than most were pricing at the turn of the year, confirmation of this view will likely be cemented by an update to the dot plots at the March meeting, with the majority of Fed speakers of late coalescing around the ‘higher for longer’ mantra.