European Open: Dax to open lower, hawkish Powell weighs on sentiment

Asian Indices:

• Australia's ASX 200 index fell by -60.9 points (-0.83%) and currently trades at 7,303.80
• Japan's Nikkei 225 index has risen by 111.12 points (0.39%) and currently trades at 28,420.28
• Hong Kong's Hang Seng index has fallen by -520.13 points (-2.53%) and currently trades at 20,014.35
• China's A50 Index has fallen by -122.59 points (-0.92%) and currently trades at 13,182.49

UK and Europe:

• UK's FTSE 100 futures are currently down -17 points (-0.21%), the cash market is currently estimated to open at 7,902.48
• Euro STOXX 50 futures are currently down -6 points (-0.14%), the cash market is currently estimated to open at 4,272.96
• Germany's DAX futures are currently down -35 points (-0.22%), the cash market is currently estimated to open at 15,524.53

US Futures:

• DJI futures are currently up 22 points (0.07%)
• S&P 500 futures are currently up 0.25 points (0.01%)
• Nasdaq 100 futures are currently down -6 points (-0.05%)

Nobody want to buy gold today following the hawkish remarks from Powell, which has sent the US 2-year yield above 5% and is continuing to trade higher in today’s Asian session. That said, there’s also very little gold selling, with prices pushing slightly lower but without conviction – gold almost looks startled today.

Investors are now taking a 50bp Fed hike in March very seriously, with Fed fund futures implying a 73.5% of a 50bp hike (up from 31.4% yesterday) and the terminal rate of 5.75% now being priced in. So not only do investors expect the Fed to increase their pace of tightening, they also expect rates to be higher than originally feared. And that’s a net-negative for gold prices.

• The majority of Asian indices tracked Wall Street lower following Jerome Powell’s highly hawkish comments during his testimony to congress
• Fed fund futures are now pricing in a 73.5% probability of a 50bp Fed hike (up from 31.4% the day prior) and a terminal rate of 5.75% (up from 5.5% the day prior)
• European futures point to a weak open for cash indices
• The Bank of Canada (BOC) are expected to become the first major central bank to pause their tightening cycle, and keep interest rates at 4.5% today
• Jerome Powell testifies to the Senate from 15:00 GMT today, but it is difficult to see how what he could say to match or even come close to the hawkish comments he said to the House yesterday
• So, unless he walks some of those comments back, his remarks may have limited impact on the markets today (famous last words…)
• However, a strong ADP report at 13:15 would likely prompt excitement over a strong NFP report on Friday, support the dollar and increase betas of a 50bp Fed hike in March
• But first we have German retail sales and industrial production at 07:00, Euro GDP at 10:00 and a speech by Christine Lagarde

DAX daily chart:

In a nutshell, the DAX is not looking overly happy at these highs. Whilst we were hoping to see a break higher, what we have in fact been presented with was a very small bullish candle (unconvincing breakout) followed by a bearish engulfing candle which closed below the breakout level.

Furthermore, the OBV indicator (on balance volume) has not confirmed the breakout as it trades lower relative to its own prior peak, which suggests bulls lack power. For now, we’re looking for some mean reversion back within the 15,150 – 15,600 range, and bears could target key levels such as the 20-day EMA or lower support level.

Economic events up next (Times in GMT)

-- Written by Matt Simpson

Follow Matt on Twitter @cLeverEdge