Global Shares Steady Ahead of Powell's Testimony on US Rates Outlook

On Tuesday, global shares were mostly stable, while the dollar rose in anticipation of Federal Reserve Chair Jerome Powell's testimony, which could provide insight into the outlook for U.S. rates. However, weak Chinese trade data had a negative impact on oil prices.

During January-February, China's exports and imports declined significantly due to a slowdown in the global economy and weak domestic demand, resulting in a drop in Chinese blue chips CSI300. Despite this, the offshore yuan appreciated against the dollar. In addition, crude shipments to China decreased in the first two months of the year, which raised concerns about demand in the world's largest importer and weighed on the price of oil.

Investor attention is still focused on the U.S. interest rate outlook and Powell's testimony. Recent data from the US has been more robust than expected, prompting speculation that the Fed will raise rates beyond its prior communication, and that rates will remain elevated for a longer period. The majority of Fed members have expressed hawkish sentiments, raising the possibility of a shift higher in March dot plot. If Powell delivers a similar message, it could lead to a rise in U.S. Treasury yields and a reversal of the dollar's downward trend.

Fed's March Dot Plot and Powell's Speech Could Impact US Treasury Yields and Dollar

Despite these concerns, the MSCI All-World index of global shares remained marginally positive at 641.60 points, close to Monday's two-week high. The yields on benchmark 10-year Treasury notes, which have more than doubled over the past year, were down 5 basis points on the day at 3.93%, while yields on the two-year note, which are more sensitive to changes in interest rate expectations, were down 4 basis points at 4.857%. The yields on two-year notes have more than tripled over the past year to nearly 5%, their highest level since 2007.

Money markets show that traders believe U.S. rates will peak just below 5.5% by September, up from the current range of 4.50-4.75%. The expected peak was closer to 4.7% just a month ago.

Powell is scheduled to deliver his semi-annual two-day testimony before Congress on Tuesday, and investors will closely watch for any insights into his views on the future direction of U.S. rates. Futures traders are pricing in a 76% chance that the Fed will raise rates by 25 basis points at its March 21-22 meeting, and a 24% probability of a 50 bp increase. The U.S. February employment report is expected on Friday, and any signs of weakness in the robust jobs market will be viewed as an indication that the Fed's rate hikes are having the desired effect.

RBA Raises Interest Rates, Tempering Hawkish Outlook, AUDUSD Drops to 2-Month Low

This week, several major central banks will announce policy decisions. On Tuesday, the Reserve Bank of Australia raised interest rates as expected, but tempered its hawkish outlook, causing investors to speculate that the end of the policy tightening cycle may be approaching. This led to a decline in the Australian dollar AUDUSD to a more than two-month low of $0.6690, representing a loss of 0.6% on the day. The dollar appreciated against a basket of major currencies, boosted by gains against the euro and the Aussie dollar, which fell 0.2% to $1.0661. The dollar lost 0.2% against the yen. Finally, Chinese trade data on Tuesday showed a pickup in crude oil imports, indicating a probable improvement in energy demand.