Is Jay Powell masking inflation concerns

Abraham George Macro Views

Jay Powell is on a mission. He has changed his narrative many times since he became chairman of the Fed. When Trump was President he learned that his independence really didn’t mean much. Now he just wants to be pragmatic. Inflation was a hot topic in his testimony to Congress on Tuesday. While many are concerned about the risks of a spike in inflation, Powell was not. At least he is playing it down.

There has been aggressive move in asset prices, strong import and export prices, hot economic data and an economy that Powell believes that could run as hot as 6% growth this year even before another massive dose of fiscal spending package.

He still wants to downplay concerns about inflation. On the contrary he said the greater risk to inflation is on the downside. Does he really believe it? We don’t know but it is his job to keep the markets calm and pass a signal to the markets that rates will stay ultra-low and more QE will continue.

So the Fed will remain passive as long as they can and is ready to provide maximum support as long as they can. Whenever the Fed’s favored inflation measures start to move they will start sending messages but we are not there yet.

Equities

The diverging trends between the main US stock indexes continues. The Nasdaq is playing out a progressive five wave decline from it Feb 15-16 highs. Meanwhile the Dow is at new highs.

The NYSE a/d ratio closed at 2:1 but total stock market volume contracted significantly from the previous day. A total of 13.6 bio was traded which is much below the 10 and 30 day daily averages.

The S&P 500 is a mix of Dow and Nasdaq. The index declined to 3806 but the subsequent rally has not pushed into new highs. But the decline from Feb 16 to Feb 23 could be a correction in an ongoing rally meaning a five rally can still continue to take place from yesterday’s low.

Bonds

As expected the bonds continue to pressure down and our long advertised levels of 155 the Jan 02, 2020 low is becoming more a reality. At the same time we are very cognizant of a snap back rally for the reasons we mentioned in the last report. Currently strong resistance exits in the 164^15 to 164^25 area.

Euro

There is a chance for Euro to rally strongly in the next few days. It is important the support at 1.1952 is not challenged.

Gold

Looks like the recent rally in gold topped out at 1816. It may still rally to 1825- 1840 but the bigger move should be to the downside. The move down can happen as early as today and it could be a strong move.

Abraham George is a seasoned investment manager with more than 40 years of experience in trading & investment and portfolio management spanning diverse environments like banks (HSBC, ADCB), sovereign wealth fund (ADIA), a royal family office and a hedge fund.