The Mind of the Market: What Powell Gives, Yellen Takes Back

Jamie McGeever provides an update on Asian markets for the day ahead.

Whether Asian markets open on Thursday might depend on which investors choose to favor among the conflicting narratives sparked by Wednesday’s U.S. trading ending: the Fed’s “dovish hike” or Treasury Secretary Janet Yellen’s remarks on the banking system.

U.S. implied rates and Treasury bond yields fell sharply following the Fed raised rates by a quarter point and Chairman Jerome Powell said policymakers considered a pause in light of recent turmoil in the national banking system.

But Wall Street ultimately sided with Ms Yellen, who said the government was “not considering insuring all uninsured bank deposits”, which many analysts said would go a long way to preventing new crises.

The three major US indexes, which had rallied during Mr. Powell’s press conference, reversed and closed down 1.6%.

Mr Powell of course played the inflation-fighting card and said the central bank did not expect a rate cut this year. Stocks didn’t appreciate much, but it was Ms Yellen’s comments that hit financials and ultimately the broader indices – US financials fell 3.7% and regional banks fell 5.3%.

S&P 500 banking index,

US regional bank stocks,

Mr. Powell’s press conference suggested that the Fed was in a wait-and-see position regarding the impact of the anticipated tightening of credit standards on the economy and inflation. He has repeatedly said that policymakers simply don’t know how the next few months will unfold.

This partly explains the decline in the dollar and US yields on Wednesday. But policymakers in Asia will remain vigilant and may continue to tilt in favor of a tightening rather than a pause.

U.S. rates implied following Fed decision,

The central banks of the Philippines and Taiwan announce their policy decisions on Thursday – the Philippine central bank is expected to raise rates by 25 basis points to 6.25%, and that of Taiwan is expected to maintain its key rate at 1.75%.

Inflation data from Singapore and Hong Kong are also due on Thursday, while the Bank of England is expected to follow the Fed and hike rates by a quarter point to 4.25%.

Here are three key events that might guide markets on Thursday:

– Tankan survey in Japan (March)

– Bank of England decision

– Consumer Confidence in the Eurozone (March)