What to Make of Powell's Visit to Congress?

Posted: June 21, 2023, 8:47 a.m.

Our daily research overs the S&P, NQ, Crude Oil, Gold, Silver, Currencies, Corn, Soybeans, Wheat, Livestock, and Softs markets.

Went out to brokerage clients before the bell

Fed Chair Powell starts his two-day Congressional testimony at 9:00 am CT. Last week, the Federal Reserve surprised markets, not by keeping rates unchanged, but by raising its forecasted terminal rate to 5.6%, via the ‘lauded’ Dot Plot. In short, this would imply two more 25bps hikes before yearend. We discussed this on Thursday, the day after the policy decision. According to the CME’s FedWatch Tool, there is a 79.4% probability the Fed will hike by 25bps at its next meeting on July 26th. Fed Funds futures do not agree with the Fed’s forecast, and despite favoring a hike in July, signal 36.7% probability rates are at the current 5.0% by yearend and only a 10.5% chance they are at the 5.5-5.75% mark.

The U.S. economic calendar is light on data this week, but we do have weekly Jobless Claims tomorrow and flash PMIs for June on Friday. Yesterday, Housing Starts blew the doors off surging by 21.7% m/m. Yes, there is certainly sticker shock with the record-setting read, but instead of focusing on the demand alluding to stubborn inflation, we believe this is the supply story the economy needs; more supply is disinflationary.

Today, we look forward to comments from Fed Vice Chair Nominee Jefferson and Fed Governor Nominee Cook at 9:00 am CT. Each had reaffirmed the 2% inflation target in comments yesterday. Chicago Fed President Goolsbee is due to speak at 10:40 am CT, he is a 2023 voter, and Cleveland Fed President Mester speaks later at 3:00 pm CT, she is a 2024 voter. Fed Governor Waller is expected to speak early tomorrow morning at 3:00 am CT. The known hawk’s comments on Friday were perceived as reaffirming the Fed’s hawkish pause, adding that the failure of a few banks shouldn’t derail the Fed’s fight against inflation.

Abroad, CPI data from the U.K for May was hotter than expected earlier this morning at +8.7% y/y versus +8.4% expected, unchanged from April, and +0.7% m/m versus +0.5% expected, but cooler than the +1.2% in April. However, PPI data showed some disinflation m/m at -0.5% versus -0.1% expected and came in slower y/y at +2.9% versus +3.6%. This leads to tomorrow’s Bank of England policy decision, due at 6:00 am CT.

Just days after U.S.-China relations seemed to take a step forward, President Biden referred to his Chinese counterpart Xi Jinping as a “dictator” at a fundraising dinner. China called the comments a fresh “provocation”.

E-mini S&P (September) / E-mini NQ (September)

S&P, yesterday’s close: Settled at 4434.75, down 19.00

NQ, yesterday’s close: Settled at 15,256.50, down 11.50

E-mini S&P and E-mini NQ futures tested our major three-star support levels perfectly yesterday before rebounding into the back half of the session. Still, neither index has been able to clear our first major three-star resistance, a level that would help neutralize selling that began Friday. This mark is most crucial for the E-mini S&P and aligns a previous level with Friday’s settlement at...

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