Day Two of Powell’s Testimony Keeps Fed Uncertainty High…..

U.S. equities finished mixed following yesterday’s rout, as investors digested a second day of testimony from Fed Chair Jerome Powell. The Chairman remained hawkish in his commentary, where he suggested rates may need to accelerate more than initially expected and may need to stay higher for longer than originally anticipated. Adding to the uncertainty, the afternoon release of the Fed’s Beige Book showed little change from the last installment. Treasury yields were mixed with the yield curve inversion worsening, and the U.S. dollar was flat after yesterday’s rally. Crude oil prices were lower, and gold was little changed in choppy action. News on the equity front was light, as CrowdStrike topped quarterly earnings estimates and offered upbeat guidance, while UPS reiterated its full-year outlook. The economic calendar was tilted toward labor data, as job openings dipped but remained elevated, and ADP’s private sector employment report bested forecasts ahead of Friday’s key nonfarm payroll release. Elsewhere, mortgage applications snapped a three-week losing streak, and the trade deficit came in slightly smaller than projected. Asia finished mixed and Europe also diverged, as the global markets processed the testimony from Fed Chairman Powell.

The Dow Jones Industrial Average decreased 58 points (0.2%) to 32,798, while the S&P 500 Index inched 6 points (0.1%) higher to 3,992, and the Nasdaq Composite gained 46 points (0.4%) to 11,576. In moderate volume, 3.5 billion shares of NYSE-listed stocks were traded, and 5.0 billion shares changed hands on the Nasdaq. WTI crude oil fell $0.92 to $76.66 per barrel. Elsewhere, the gold spot price lost $0.70 to $1,819.30 per ounce, and the Dollar Index was flat at 105.64.

The ADP Employment Change Report showed private sector payrolls rose by 242,000 jobs in February, above the Bloomberg forecast calling for a 200,000 gain, while the prior month’s figure was upwardly revised to a 119,000 increase. The report, which does not include government hiring and firing, comes ahead of Friday’s broader February non-farm payroll release, expected to show headline employment rose by 224,000 and private sector job growth both increased 215,000. The unemployment rate is forecasted to remain at 3.4% and average hourly earnings are projected to rise 0.3% month-over-month (m/m) and be up 4.7% y/y.

The MBA Mortgage Application Index rose 7.4% last week, following the prior week’s 5.9% decrease. The index snapped a string of three-straight weekly declines as a 9.4% gain in the Refinance Index was accompanied by a 6.6% increase for the Purchase Index. The rise came even as the average 30-year mortgage rate rose 8 basis points (bps) to 6.79% and is up 270 bps versus a year ago.

The trade balance showed that the January deficit widened by a smaller amount than expected, coming in at $68.3 billion, versus December’s positively revised deficit of $67.2 billion, and compared to forecasts calling for a move to $68.7 billion. Exports rose 3.4% m/m, and imports increased 3.0%.

Fed Chairman Jerome Powell is continuing his two-day semi-annual Congressional testimony today after yesterday he offered a hawkish tone, suggesting rates may need to go higher for longer and the Fed could accelerate in order to curb inflation, which appeared to fuel uncertainty regarding a potentially larger-than-expected rate hike at the next policy meeting slated for March 21-22. His opening remarks did not differ from yesterday but the Q&A session in front of the House Financial Services Committee is being closely followed for any other color on the path of monetary policy for the Fed.

In other Fed news, the Central Bank released its Beige Book—an anecdotal read on business activity across the nation used by the Central Bank to prepare for its next monetary policy decision. The report indicated that overall economic activity was relatively unchanged from its last installment. Six of the Fed Districts noted modest increases in activity, while six showed no change and one District saw a slight decline, with most areas expecting little change to growth ahead. Consumer spending held steady, though a few Districts reported moderate to strong growth in retail sales during what is typically a slow period. Inflation and higher interest rates continued to reduce consumers’ discretionary income and keep the housing market subdued. Meanwhile, the report noted that manufacturing activity stabilized following a period of contraction.

Treasury rates were mixed, as the yield on the 2-year note was up 4 bps to 5.05%, the yield on the 10-year note ticked 1 bp higher to 3.98%, while the 30-year bond rate decreased 1 bp to 3.88%.

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