FUNDAMENTAL NEWS AND TECHNICAL ANALYSIS REPORT – 11 JANUARY 2023

11 Jan 2023

Fed’s Powell rejects the climate mission and anticipates political opposition to rate increases

Asian stock market closes in green on Tuesday. The Shanghai Composite is down 0.24% at 3169.51. Overall, the Singapore MSCI is down 0.82% at 294.59. Over in Hong Kong, the Hang Seng Index is up 0.03% at 21331.46. In Japan, the Nikkei 225 is up 1.03 at 26175.56. While the Topix index is up 1.08% at 1901.25 South Korea’s Kospi is up 0.35% at 2351.31. Australia S&P/ASX 200 up 0.60% at 7131.00.

Top News of the Day:

The Federal Reserve is bracing for political resistance as its attempts to bring down inflation hit growth and bolster the ranks of jobless.

“Restoring price stability when inflation is high can require measures that are not popular in the short term as we raise interest rates to slow the economy,” Fed Chair Jerome Powell said in prepared opening remarks at a panel discussion in Sweden, where he was attending a conference on central bank independence. The remarks were published in advance on the Fed’s website.

However, Powell said that “the benefits of independent monetary policy in the U.S. context are well understood and broadly accepted,” and said he was confident of the Fed’s ability to take “necessary measures.”

Market Summary as per 10/01/2023:

European equities Tuesday closing. The DAX futures contract in Germany traded down 0.12% at 14774.60, CAC 40 futures down 0.55% at 6869.14. UK 100 futures contract in the U.K. up 0.39 at 7694.49

In the U.S. on Wall Street, the Dow Jones Industrial Average Closed up 0.56% at 33704.10. The S&P 500 up 0.70% at 3919.25 and the Nasdaq 100 up 1.01% at 10742.63, NYSE closes 0.60% up at 15608.17.

Top Market News Today:

In the Forex market, GBPUSD up 0.08% at 1.2160. The USDJPY up 0.09% at 132.36, The USDCHF down 0.05 at 0.9217. EURUSD up 0.15% at 1.0748. EUR/GBP up 0.14% at 0.8841. The USD/CNY down 0.05% at 6.7731 at the time of writing.

In the Commodity market U.S. Gold futures up at 0.27% $1,881.45. Elsewhere, Silver futures up 1.25% at $23.89 per ounce, Platinum up 1.21% at $1089.13 per ounce, and Palladium up 0.37% at $1782.00.

Brent Crude Oil down 0.55% at $79.66 per barrel.

In the Cryptocurrency Markets, Bitcoin at 17445.30 up at 0.02%, Ethereum down 0.10% at 1334.99, Litecoin at 82.98 up 2.62%, at the time of writing.

Top Market Segment to Watch Out for Today:

OIL– Oil prices fell on Wednesday after industry data pointed to a large weekly build in U.S. crude stockpiles, although losses were limited by the prospect of strong demand this year and as the dollar softened on expectations of slower interest rate hikes.

Data from the American Petroleum Institute showed that U.S. crude stockpiles surged by more than four times in the first week of 2023 from the prior week. There also appeared to be a negligible release of oil from the Strategic Petroleum Reserve.

Economic News:

US: – The Federal Reserve’s independence from political influence is central to its ability to battle inflation, but requires it stay out of issues like climate change that are beyond its congressionally established mandate, Fed Chair Jerome Powell said on Tuesday.

“Restoring price stability when inflation is high can require measures that are not popular in the short term as we raise interest rates to slow the economy. The absence of direct political control over our decisions allows us to take these necessary measures without considering short-term political factors,” Powell said in remarks to a forum on central bank independence sponsored by the Swedish central bank.

But “we should ‘stick to our knitting’ and not wander off to pursue perceived social benefits that are not tightly linked to our statutory goals and authorities,” Powell said. “Taking on new goals, however worthy, without a clear statutory mandate would undermine the case for our independence.”

Though Powell said the Fed’s regulatory powers give it a “narrow” role to ensure financial institutions “appropriately manage” the risks they face from climate change, “we are not, and will not be, a ‘climate policymaker.'”

“Without explicit congressional legislation, it would be inappropriate for us to use our monetary policy or supervisory tools to promote a greener economy or to achieve other climate-based goals,” he said. “Decisions about policies to directly address climate change should be made by the elected branches of government and thus reflect the publics will as expressed through elections,” he told the forum in Stockholm.

Powell’s comments, particularly about climate change, are not new.

But the restatement came in sharp terms as his first public remarks since the U.S. Republican Party installed one of its members as Speaker of the House of Representatives, and began selecting new chairs for the committees that oversee federal government operations including the Fed.

Euro Zone: –

The UK is “distinctive” in facing multiple inflation-causing challenges at the same time, said Bank of England chief economist Huw Pill in a speech.

Pill outlined that inflation in the UK, currently 10.7%, is being driven by tight labour markets, strong firm pricing power in the UK and US and the effects of the war in Ukraine.

“The UK is distinctive in facing all three of these challenges at the same time,” said Pill.

He added that the Bank’s setting of the current 3.5% interest rate was part of “a common process of monetary policy ‘normalisation’ after the long period of exceptional support,” seen during the 2008 financial crisis and the COVID 19 pandemic.

There were 1.2mln job vacancies in the UK as of October, down from 1.3mln in May, leaving employers offering higher salaries as a result, which has partially driven inflation rates.

Early retirements have played a part too, outlined Pill, with a higher number of 50 to 65 five-year-olds now inactive in the UK’s labour market, potentially due to long-term health issues stemming from the pandemic.

“Crucially, rising inactivity among the working age population represents an adverse supply shock, which adds to the difficult shorter-term trade-offs facing monetary policy,” he said.

Supply chain bottlenecks in the wake of the pandemic have driven inflation, Pill commented, while “additionally, Brexit weighed on UK trade with continental Europe, also serving to disturb supply chains and weaken competitive pressure on UK producers.”

A hike in the price of gas following the war in Ukraine has also caused an increase to fuel and food prices across Europe.

Pill added that while these challenges were not unique to the UK, the combination of all three were not being faced by many other countries.

Top Economic Releases Today:

USD: Crude Oil Inventories Forecast –2.243M, Previous1.694M at 21:00
AUD: Retail Sales (MoM) (Nov) Actual 1.4%, Forecast 0.6%, Previous –0.2% at 06:00
AUD: CPI (YoY) (Q4) Actual 7.3%, Forecast 7.3%, Previous 6.9% at 06:00
RUB: CPI (YoY) (Dec) Forecast 12.2%, Previous 12.0% at 21:30
RUB: CPI (MoM) (Dec) Forecast 1.0%, Previous 0.4% at 21:30