No fireworks from Powell, US stocks turn green on the day

Summary:

• Fed chair Powell reiterates “patient” approach; warns on overseas growth

• CB Consumer confidence beats forecasts; Soft housing data

• Stocks look to recover after Monday’s decline

The tone adopted by Jerome Powell during his testimony before lawmakers on Capitol hill was in keeping with his recent communications, as the Fed chair providing no great shocks on the policy front. A dramatic policy U-turn at the start of this year has arguably been one of the greatest catalysts behind the subsequent rally in risk assets, with the negative correlation between real yields and equities rising substantially to its strongest level since 2012.

There’s been a clear opposing move in rate and equities - as measured by 5-year inflation-linked Treasuries and the S&P500 (US500 on xStation) which has seen the largest divergence between these assets since 2012 when Bernanke was the Fed chair. Source: Bloomberg    

Turning our attention to today’s event, the following are selected comments from Powell:

• Favourable economic outlook with some cross currents

• Reaffirms patient approach to monetary policy

• Some signs of stronger wage growth

• Recent data has softened but 2019 expected to be solid; albeit slower than 2018

• Prepared to adjust balance sheet in light of economic and financial developments

Elsewhere in the US there’s been a couple of data points worth touching on, with the latest look at consumer spending delivering a pleasing beat while housing figures were mixed to bad on the whole. Specifically, the Conference Board consumer confidence index rose to 1314, from 121.7 last time out. This figure compared favourably to the 124.8 consensus forecast. Before this release, the most recent housing figures painted a mixed picture that on balance appears to be a little negative. The number of housing starts was a clear miss, in falling to 1.08M - the lowest level since September 2016 - from 1.21M last time out (this was also revised lower from 1.26M prior). The consensus expectation was 1.25M. However, one bright spot was an increase in building permits which unexpectedly rose to 1.33M from 1.32M last time out (revised down from 1.33M) against a forecast for 1.29M.

Housing starts and permits both remain fairly depressed by historical standards with the latest figures on the former a potential warning sign of a slowdown. Source: XTB Macrobond

The US500 printed a shooting star on D1 yesterday - coincidentally at a similar level to the high seen in early December after the first time the US postponed tariff increases on China. 2824 remains potentially key resistance. Price remains above the 10 day EMA as it has for the bulk of this move higher. Source: xStation