Economists have changed expectations on rising Fed rates. The dollar has gained new growth drivers

The stock market continued to decline on Thursday, and the dollar rose amid comments by Fed Chairman Jerome Powell on the recent rapid increase of treasury bonds yield. According to him, the recent tightening of financial conditions forces to closely monitor market dynamics. But there was no hint of restraining profitability. This contrasts sharply with the statements of the ECB, which promised to intervene in case of further growth in profitability.

Jerome Powell also announced that the current monetary policy is acceptable at the moment, and the Fed will be "patient" about further action. This means a small change in the direction of the committee for economists, as the rhetoric changed. Now the market expects the Federal Reserve to exclude the phrase about a possible further decline, which will indicate the end of the mitigation policy. Expectations on rising interest rates have changed. Now, according to the forecast, the first increase is expected until 2023, which still contradicts the official forecast of the Fed.

Following the comments, the stock market accelerated its decline. The Nasdaq 100 has already lost 10% since its peak in February, and the S&P 500 has evened almost all growth for 2021. Treasury yields rose sharply to 1.58% and later stabilized at 1.54%. At the same time, the 2-year bonds yield remains in the previous three-month range, having shown a slight increase on Thursday to 0.145%.

Another indicator of growing expectations regarding the tightening of the Fed's monetary policy is the dynamics of gold prices. The rise in bond yields provoked the fall of precious metal prices below the minimum on November 30, 2020. The price reached $1690 per troy ounce, losing just over $250 for the first two months of this year.

Oil prices soared after OPEC+ surprised traders with its decision to keep the production level unchanged. Brent oil exceeded $67.70, while WTI is above $64.70 a barrel.

Main market quotes:

S&P 500 (F) 3,754.88 -10.62 (-0.28%)

Dow Jones 30,924.14 -345.95 (-1.11%)

DAX 13,927.80 -128.54 (-0.91%)

FTSE 100 6,593.54 -57.34 (-0.86%)

USD Index 91.975 +0.331 (+0.36%)

• – US Nonfarm Employment Change (Feb) at 15:30 (GMT+2);
• – US Unemployment Rate (Feb) at 15:30 (GMT+2);
• – Canada Ivey PMI (Feb) at 15:30 (GMT+2).

by JMarkets, 2021.03.05

This article reflects a personal opinion and should not be interpreted as an investment advice, and/or offer, and/or a persistent request for carrying out financial transactions, and/or a guarantee, and/or a forecast of future events.