💰Rejoice with Uncle Powell: Risk-on sentiment🥃

Equity markets cheered with Uncle Powell as he slowed down its monetary tightening further. While he reinforced numerous times that the rate hike cycle isn’t going to pause, markets are still hopeful for a pivot in the later part of the year. 

The increase of 25 basis points wasn’t surprising, given it was widely expected. 

🎢More evidence is needed on inflation cooling🍏

It is indeed encouraging to see some sparks of inflation waning. Uncle Powell hammered on the idea that recent moderation on price growth has to take further root and that it “would be premature” to “declare victory”. 

The acknowledgement is sufficient for the market to take it as a dose of dovish comments. Uncle Powell supports this by stating that if the tightening is too much, the Fed has the tool to reboot the economy once more. This spurs confidence that the economy can still have a soft landing. 

📦Goods inflation is ok, not so for services inflation📱

During the press conferences, when answering questions, he had emphasized numerous times that the fall in goods inflation, while welcoming, has been overshadowed by the stickiness of service inflation, where price growth is still accelerating.

Uncle Powell had tried to bring investors into the reality that inflation remained too elevated. Still, market participants took home the message- perhaps a few more rate hikes are all that is left. 

He rejected the idea of a pause in a rate hike. He observed how the current policy infiltrated the broader economy, given concerns that the lag time between the policy enactment and impact could cause over-dose damage to the economy. His concern is that the services sector, which excludes housing and is representative of more than half of the core inflation index, sees intense price pressure that has yet to result in a definite evidence of cooling sign.

Pika World thinks Uncle Powell is increasingly facing a challenging task as a bullish market could do his job to tighten financial conditions ever increasingly tricky as the Fed has a firm resolve to solve the inflation woes.

📮What are our dishes today? 📖

It is yet another day for a string of economic data. 

First on the list is the Nonfarm Productivity for Q4 which is expected to rise to 2.4% from 0.8%. 

Likewise, we will welcome Unit Labor Costs (QoQ) for Q4, which should moderate to 1.5% from 2.4%. If it meets such expectations, markets can take relief that labour cost growth is slowing and can help in the inflation fight. 

It is 2 Feb, 9 am in Singapore and 8 pm in New York. The market has a breakout from its long-term downward trend as Meta introduced yet another boost to the risk-on sentiment with a large share buyback plan and better-than-expected earnings. 

We are mindful of the exuberant market sentiments and pare down our trades progressively in a rebound cycle.