A look at the day ahead in U.S. and global markets from Mike Dolan
Wall St stocks' worst day in almost three weeks sets the backdrop for Wednesday's congressional testimony from Federal Reserve chair Jerome Powell, with markets starting to get antsy about everything from Trump to Taiwan.
In a packed day for major macro events - including a Bank of Canada policy decision, Britain's annual budget, key U.S. labor market updates and Super Tuesday primary results - the main market focus was likely to be on Powell's appearance.
In many respects, Powell and his team have interest rate markets where they want them - and should be comfortable now that the Fed's December message on modest rate cuts later this year has been heeded at last ahead of its March 20 policymaking meeting.
Tuesday's soft service sector survey for February did nudge up the amount of easing futures markets are pricing for 2024. But at 88 basis points they remain close to the most recent Fed projections for some 75bps of cuts this year and the first move is still not fully priced until July.
Given that, Powell may not want to rock the boat too much - although he could nod to the risks associated with a re-acceleration of the economy or even warn on recent stock market "exuberance" in the long question-and-answer session that follows his speech on Capitol Hill.
A possible rise in long run "neutral" interest rate assumptions, the pace of the Fed's balance sheet rundown and election year policy questions may also come in the exchanges.
But, almost as if they were expecting a slap on the wrist, pricey U.S. megacap stocks tumbled on Tuesday ahead of the event - with a variety of reasons cited, from economic and political risks in China to antitrust moves in Europe and the Super Tuesday klaxon on the White House race.
Of the so-called Magnificent Seven of leading stocks, only artificial intelligence poster child Nvidia managed to gain on the day. The S&P500 lost 1% and the Nasdaq 1.7%, although futures clawed back about a third of that ahead of Wednesday's bell.
In China and Taiwan, where the "Mag 7" revenue exposure is estimated to be close to 20%, the mood remained edgy after annual government plans were outlined by the National People's Congress on Tuesday. The CSI300 edged lower again overnight, even though Hong Kong recovered some losses.
Strategists puzzled over how a modest 3% budget deficit target would contain enough of a fiscal boost to meet the government's ambitious 5% economic growth target for the year.
And yet surging defence spending plans and the NPC report's removal of language about Taiwan that included the phrase "peaceful reunification" were most jarring to those worried about worsening geopolitics.
The prospect of Donald Trump's possible return to the White House, with promises of 60% tariffs on Chinese imports, will not have eased those concerns much as he dominated this week's slew of Republican primaries.
On Tuesday, Trump won the Republican votes in a dozen states and brushed aside rival Nikki Haley to all but clinch his third consecutive presidential nomination even in the face of a litany of criminal charges. Again casting Trump as a threat to American democracy, Biden took the equivalent Democratic party nods and set up what looks to be a re-run of the 2020 election race.
Elsewhere, and possibly partly related to the political uncertainties, gold and bitcoin remained well bid.
Bitcoin suffered vertigo on Tuesday after briefly hitting record highs above $69,000 and retreated sharply in a wild 14% intraday swing. But it was back higher about $66,500 on Wednesday, even if still shy of the new peak.
Gold prices also breached December's record peak briefly on Tuesday and held most of those gains today.
The dollar index were lower more generally.
With the Bank of Canada expected to leave its policy rate unchanged at 5% later on Wednesday, the focus will be on the accompanying statement as well as Governor Tiff Macklem’s post-decision interview to see if an all-clear on inflation is forthcoming. Canada's dollar was steady overnight.
Britain's pound and government bond yields pushed up ahead of finance minister Jeremy Hunt's annual budget speech. Despite the fragile state of the public finances, Hunt is expected to offer tax cuts to voters ahead of this year's election - including a reported 2 percentage point cut in social security contributions.
Key diary items that may provide direction to U.S. markets later on Wednesday:
* Federal Reserve Chair Jerome Powell delivers semiannual monetary policy testimony before the House Financial Services Committee; Fed issues Beige Book on economic conditions; San Francisco Fed President Mary Daly and Minneapolis Fed chief Neel Kashkari speak
* U.S. Feb ADP (NASDAQ:ADP) private sector jobs report, Jan JOLTS job openings data, Jan wholesale sales/inventories
* Bank of Canada policy decision
* British finance minister Jeremy Hunt delivers annual budget to parliament
* U.S. corp earnings: Campbell Soup, Brown-Forman, JD.com etc
(By Mike Dolan, Editing by Alison Williamsmike.dolan@thomsonreuters.com)