Equities shrug of Powell “I told you so”

The strong labour report on Friday was just the excuse Jerome Powell needed to reiterate to investors the Fed is not done, speaking at the Economic Club of Washington when it comes to raising interest rates. Powell did concede that while the “disinflationary process” had begun, the continued interest-rate increase will be appropriate, making decisions one meeting at a time. After a shaky start on Monday, equity markets seemed reassured by the tone as all major US indexes ended the day in the blue, after an initial wobble immediately post the speech. The dollar fell, and copper, oil and gold all rose. Longer dated US treasury yields have risen in the past week, particularly relative to the shorter end, however, the curve remains deeply inverted.

BCA research monthly sentiment pulse amongst investors reveals that, once again, there is nothing like a rally in stocks to get money managers becoming more bullish. Their survey revealed that 57% of the respondents noted that the 12-month outlook for global equities has improved relative to three months ago, which suggests that investors are more optimistic about financial market prospects. Most investors seem to feel the trend of foreign equities outperforming US ones will continue.

After a strong start to the year for global equity markets, it is not clear what can drive the next leg of the rally. US stocks are technically close to resistance. The earnings season has not been great. The bounce in the tech sector has been impressive however, the FANG index is also now also at a level it saw resistance at last June.

The threat of geopolitical tensions rising again as a result of balloongate, as the Chinese government floated a balloon the size of these buses apparently over the US before it was shot down, did indicate relations between the two super powers are still fraught. However, perhaps relationships between China and Taiwan are improving somewhat as The vice chairman of the Taiwanese opposition Kuomintang, Andrew Hsia, is expected to visit China today.

European markets are expected to follow the US lead and open the day on a positive note.