The most important questions these days are bout inflation, Interest rates, and economic developments. Many ask if the US economy is strong enough to handle this crazy inflation and higher rates? Fed Chair Powell says, yes, it is!
Asian stock closed in Red, European trading lower, and US markets hesitating!
As mentioned earlier in the week, more focus will be on the central banks' speakers, especially Wednesday's Mr. Powell's testimony before the Senate Banking, Housing, & Urban Affairs Committee.
In the prepared text for the speech, he said that the US economy is strong enough to handle the upcoming challenges. Therefore, the ongoing interest rate hikes will be appreciated. In opening remarks, he said:
The American economy is very strong and well-positioned to handle tighter monetary policy,
In addition, he talked about the strong labor market and possible light weaknesses that we may see. Also, he mentioned that with expected pressure on the economy, we could see that supply and demand will be balanced.
Considering what Mr. Powell said, we can understand that FED does not have any concerns over economic growth, and they are focusing more on inflation, which was so evident when he said, "We are strongly committed to bringing inflation back down, and we are moving expeditiously to do so,"
The positive point of his comments was that he mentioned that FED would make its decisions meeting by meeting and based on inflation progress. Interestingly, May data suggest core inflation likely held at April's 4.9% annual pace or even eased slightly. This comment gave the market participants a little confidence that if inflation becomes under control, it's possible to see the pause in the September meeting.
After Mr. Powell's opening speech, the market reacted positively and returned from its daily low to print a slight gain of 0.5% on average in the leading indices. However, it is still so soon to say that market sentiment has changed.
Market reaction to Powell's speech was positive; SP500 regained all its earlier losses and now trading 0.5% higher. The first resistance sits at 3,970, but the primary resistance, where the trend can be changed, is still at 4,300. As long as it's trading under this level, bears have complete market control. Overall, the market sentiment still is negative and under pressure to signal that this can be just a correction for now. We need many more reasons to say that the trend has changed.