Futures linked to major Wall Street indexes rebounded from their daily lows as the dollar erased some early gains following the publication of Fed Chairman Powel preparing remarks for the Riksbank’s Swedish symposium on bank independence central, organized by the Riksbank.
The remarks showed that Powell would not be discussing the state of the US economy or the outlook for monetary policy, so markets’ attention will be focused on Thursday’s CPI inflation reading.
The following are the key takeaways from Powell’s remarks:
- Without Congressional laws, it is not appropriate for us to use our monetary or surveillance tools to promote a greener economy.
- The Fed must resist the temptation to broaden its scope to address other important social issues.
- The Fed has limited responsibilities regarding climate-related financial risks.
Regarding inflation, the market expects a reading of 6.5%, while it was 7.1% YoY in November. Can inflation surprise with a lower reading? Here attention can focus not only on energy prices (in December fuel prices were lower than in December 2021), but also on food, which maintains a significant contribution to inflation (from about 1.5 to 1. 6 percentage points in recent months). If the contribution of food inflation decreases significantly, this will signal potential for larger declines in the coming months.
The final contribution of energy prices is 1.0 percentage points, while food prices are 1.5 percentage points. Source: Bloomberg
Food inflation is still above 10% y/y! However, fertilizer prices, which affect agricultural commodity prices and, of course, food prices, suggest that food inflation is stalling. Source: Bloomberg
The US500 is again approaching the main resistance at 3900 points. Source: xStation5
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