Markets have experienced a shaky beginning in the new quarter, and this instability could intensify come Wednesday. The anticipation surrounds Federal Reserve Chair Jerome Powell's upcoming address, with speculation mounting over whether the Fed will initiate a policy softening by June.
There's a disconnect between the expectations of money market traders and the Fed, along with most analysts, regarding the timing and magnitude of the anticipated interest rate reductions this year.
Despite market participants not fully anticipating a rate cut until July, there's a growing consensus around a 65% probability of a reduction in June. Additionally, projections for three rate cuts in 2024 have been scaled back, amidst persistent inflation and robust economic indicators, suggesting the Fed might be aligning with this more cautious outlook.
"The greater danger would be to prematurely lower the funds rate," remarked Loretta Mester, President of the Federal Reserve Bank of Cleveland, on Tuesday. She did not dismiss a potential June cut, contingent on forthcoming inflation data aligning with her expectations for a decrease.
Regarding the recent personal consumption expenditures data, Powell noted the inflation figures were "in line with our preferences." His forthcoming remarks on Wednesday will be keenly analyzed for indications of whether a June policy easing is deemed suitable.
This ongoing debate about when to implement the first rate cut has kept Treasury yields high, thereby challenging the stock market rally and pushing U.S. equities to increasingly lofty valuations amidst record peaks.
On Tuesday, the benchmark 10-year Treasury yield reached a four-month high, while the S&P 500 has seen a near 1% decline since the quarter's start.
The technology sector, particularly the semiconductor industry, is on alert following Taiwan's most significant earthquake in 25 years, which could disrupt supply chains. "This event may cause interruptions in the tech supply chain," analysts at Barclays have noted.
Taiwan Semiconductor, a key provider to companies like Apple and Nvidia, had to evacuate some of its plants, though it later stated that employees were returning to work. The company's shares dropped by 1.3% in Taipei.
Additional data expected on Wednesday includes the ADP's private-sector employment report, serving as a precursor to Friday's official nonfarm payroll figures, and the ISM services index for March.
Wall Street and stock index futures indicate a tentative start once more, with both S&P and Nasdaq futures showing slight declines.
The dollar remains strong, with the yen hovering around 152, its weakest in decades, prompting speculation about potential intervention by Japanese authorities.
Later on Wednesday, the U.S. market's direction could be influenced by several key events:
* Speeches by Fed's Powell, Bowman, Goolsbee, Barr, and Kugler
* ADP report on nonfarm private employment and ISM non-manufacturing index
* U.S. Treasury's auction of four-month bills
