The US Dollar and US government bond yields both rose this afternoon as Fed Chair Powell delivered his first testimony to the House Financial Services Committee. In his opening remarks, Powell reiterated the view that further gradual rates increases will be required but also noted that they will have to strike a balance between avoiding an overheated economy and bringing PCE inflation to 2%. He went on to say in the Q&A session that his own outlook for the economy has strengthened since December while recent data has increased his confidence that inflation will rise. On the data front, US releases have been mixed with soft readings for durable goods and the advance goods trade balance followed by a 17-year high for consumer confidence – the Atlanta Fed GDPNow was revised down to +2.6% from Q1 from +3.2%. German CPI also came in softer-than-expected although this was largely anticipated after the regional prints. In equity space, European bourses are mostly lower at the closing bell having lost some minor ground alongside US markets on the aforementioned Powell comments. Oil prices have also dropped with US crude futures losing over one-percent at the recent lows. There were a few Brexit headlines to note, first from EU Brexit Minister Barnier who said there are significant points of disagreement with the UK over the transition period and he is concerned about the time left to reach a Brexit deal. UK Trade Minister Fox meanwhile said the best way forward is for Britain to renegotiate a new relationship with the European Union – one based on an economic partnership involving a customs union and a single market in goods and services. Still to come today, possible comments from the Riksbank’s Ohlsson at 17:00 GMT and US agriculture prices received at 20:00 GMT.
* US Corporate News:
- Macy’s (%): Q4 EPS $2.82 versus $2.68 expected | Q4 Revenue $8.67 Bln versus $8.65 Bln expected | Comp sales +1.3% | Sees FY18 EPS $3.55-3.75 versus $3.04 expected
- AutoZone (%): Q2 EPS $8.47 versus $8.92 expected | Q2 Revenue $2.4 Bln versus $2.4 Bln expected
- JPMorgan (%): Raised ROTCE target to 17% from 15%
- Comcast (%)/Fox (%): Comcast has made a rival bid to Fox for Sky worth $30.9 Bln
- Boeing (%): Reaches informal deal with the Trump administration for new Air Force One planes.
* Moody’s revises US growth up to 2.7% on taxes, stimulus; G20s up to 3.4%:
- Moody’s Investors Service today revised its global growth forecasts for 2018 and 2019, incorporating stronger than expected economic data and reflecting the likely pick up tied to additional US fiscal stimulus.
- Moody’s raised its projections of US real GDP growth to 2.7% in 2018 and 2.3% in 2019, from a prior forecast of 2.3% and 2.1%, respectively.
- These revisions account for stronger than expected momentum going into 2018 and additional fiscal stimulus from the February 2018 congressional budget deal.
- The recent financial market selloff does not alter Moody’s US and global growth outlook.
* UK Trade Minister Fox says it is not in the interest of the EU nor the UK to put in place barriers to trade. He said the best way forward is for Britain to renegotiate a new relationship with the European Union – one based on an economic partnership involving a customs union and a single market in goods and services
* German CPI Data (Feb P):
- CPI M/M +0.5% versus +0.5% expected, previous -0.7%
- CPI Y/Y +1.4% versus +1.5% expected, previous +1.6%
- CPI EU Harmonized M/M +0.5% versus +0.6% expected, previous -1.0%
- CPI EU Harmonized Y/Y +1.2% versus +1.3% expected, previous +1.4%
* US Advance Goods Trade Balance (Jan) -$74.4 Bln versus -$71.6 Bln expected, previous -$72.3 Bln
* US Durable Goods Data (Jan P):
- Durable Goods Orders M/M -3.7% versus -2.2% expected, previous +2.8% revised to +2.6%
- Ex. Transport M/M -0.3% versus +0.4% expected, previous +0.7%
* US Wholesale Inventories M/M (Jan P) +0.7% versus +0.3% expected, previous +0.4%
* Fed Chair Powell testifies to the House Financial Services Committee:
- In gauging the appropriate path for monetary policy over the next few years, the FOMC will continue to strike a balance between avoiding an overheated economy and bringing PCE price inflation to 2 percent on a sustained basis.
- While many factors shape the economic outlook, some of the headwinds the U.S. economy faced in previous years have turned into tailwinds: In particular, fiscal policy has become more stimulative and foreign demand for U.S. exports is on a firmer trajectory. Despite the recent volatility, financial conditions remain accommodative.
- At the same time, inflation remains below our 2 percent longer-run objective.
- In the FOMC’s view, further gradual increases in the federal funds rate will best promote attainment of both of our objectives. As always, the path of monetary policy will depend on the economic outlook as informed by incoming data.
- After easing substantially during 2017, financial conditions in the United States have reversed some of that easing. At this point, we do not see these developments as weighing heavily on the outlook for economic activity, the labor market, and inflation.
- We continue to view some of the shortfall in inflation last year as likely reflecting transitory influences that we do not expect will repeat; consistent with this view, the monthly readings were a little higher toward the end of the year than in earlier months.
- We anticipate that inflation on a 12-month basis will move up this year and stabilize around the FOMC’s 2 percent objective over the medium term. Wages should increase at a faster pace as well. The Committee views the near-term risks to the economic outlook as roughly balanced but will continue to monitor inflation developments closely.
* EU Brexit Minister Barnier said there are no surprises in the draft text of the withdrawal treaty. He did note however that there are significant points of disagreement with the UK over the transition period and he is concerned about the time left to reach a Brexit deal. He also stated that there can be no cherry-picking on Brexit.
* US FHFA House Price Index Data (Dec):
- House Price Index M/M +0.3% versus +0.4% expected, previous +0.4% revised to +0.5%
- House Price Index Y/Y +6.5%, previous +6.5%
* US S&P Core-Logic/Case Shiller House Price Data (Dec):
- House Price Index M/M +0.6% versus +0.6% expected, previous +0.7%
- House Price Index Y/Y +6.3% versus +6.3% expected, previous +6.4%
* SPD parliamentary group leader Nahles says he is optimistic party members will approve the coalition.
* US Consumer Confidence (Feb) 130.8 versus 126.0 expected, previous 124.4 revised to 124.3 – Highest since November 2000
* Richmond Fed Manufacturing Index (Feb) 28 versus 15 expected, previous 14
* Atlanta Fed GDPNow (Q1) cut to +2.6% from +3.2%
* Drudge Report revealed US President Trump has named his campaign manager for the 2020 election, signalling his intention to run.
* Fed Chair Jerome Powell answers questions at the House Financial Services Committee: