Marketmind: The Powell Put

A look at the day ahead in European and global markets from Wayne Cole.

Wall Street must be hoping Federal Reserve Chair Jerome Powell would speak in public every day. Given a chance to react hawkishly to the bumper January payrolls report, Powell demurred and chose to stay boringly balanced on the rate outlook.

Asked if he regretted using “disinflation” 11 times in his media conference last week, he said no, he would do the same again.

He reiterated the “disinflationary process” was under way, but it would likely take a “significant” period of time and if the data kept coming in stronger than expected, the Fed would have to do more on rates.

Hardly earth shattering stuff, but for markets these days if Powell is not all-out in-your-face hawkish, then he’s dovish. There’s no middle ground. Wall Street duly rallied while Treasury yields and the dollar have eased a little, with futures priced for just two more hikes to 5.0-5.25%.

Meanwhile, the yen has had a good 24 hours which some put down to yesterday’s report of strong wages figures, a sea-change for a market that has spent years ignoring Japanese data because nothing ever happened in them.

Nominal total cash earnings grew 4.8% y/y last quarter, the fastest since January 1997, thanks to an outsized 7.6% jump in December bonuses.

Faster pay growth in the spring labour talks is seen as an essential condition for the Bank of Japan (BOJ) to scale back its massive monetary stimulus.

Calls by Prime Minister Fumio Kishida for companies to raise wages seem to actually have had some effect with some big names pledging large rises recently.

On Tuesday, video game maker Nintendo Co Ltd said it plans to lift workers’ base pay by 10% even as it cut its profit outlook. It was rewarded today by the market knocking its shares down 8%.

Key developments that could influence markets on Wednesday:

– Fed’s Williams, Cook, Bostic, Barr, Kashkari and Waller all speak, with Waller and Williams likely to carry the most weight with markets

– Earnings from Uber and Walt Disney, which will be the first result with Iger back in charge

(Reporting by Wayne Cole; Editing by Sam Holmes)