Markets await Powell testimony amid speculation for further increases

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Markets await Powell testimony amid speculation for further increases
Credit: © Reuters. -- European markets including the Ibex 35 , CAC 40 , and DAX remain mixed on Wednesday following Wall Street's declines yesterday and the mixed tone in Asian markets early this morning.

Following last week's decision by the U.S. Federal Reserve to pause the pace of interest rate hikes, this week investors' attention is on the appearances today and tomorrow of Chairman Jerome Powell before the U.S. Congress and the Senate, respectively.

IG analyst Diego Morin said they do not expect any changes in his statements, although they will see if congressmen or senators squeeze the Fed chairman.

This Wednesday, Powell will speak at 10:00 ET (14:00 GMT) before the House Financial Services Committee and tomorrow before the Senate Banking Committee.

Analysts at Link Securities said that in principle Powell should not contribute anything new in relation to what he said last week in the press conference after the end of the Federal Open Market Committee (FOMC) meeting, although in these interventions legislators are usually aggressive, sometimes forcing 'novel' answers from the 'questioned'. They added that, nevertheless, they will have to keep a close eye on what Powell says about the disinflation process underway; about the resilience of the labor market; about economic growth and, above all, about future interest rate movements by the Fed.

The analysts added that in this regard, it should be noted that, although FOMC members made it clear that they expect two more rate hikes before the end of the year, the markets do not quite believe it, with most investors betting that the Fed will only carry out one more, probably at the July FOMC meeting.

Chris Iggo, CIO for Core Investments at AXA, discussing market developments after the Fed meeting, said there is a lot of conflicting evidence on whether the U.S. will enter a recession, noting that equity and credit markets are betting that the U.S. economy is experiencing a soft landing, but can't seem to make up their minds on what to expect. He further notes that the debate remains central to the outlook, which points out that the real litmus test is the labor market, and so far it has not shown any significant weakness.

Pending what Powell says this afternoon, Link Securities believes that European stock markets should move flat and/or slightly higher during the session, thus trying to recover some of what was ceded in the last two sessions.

Link Securities analysts noted that they will also have to keep an eye on the reaction of the region's bonds, especially British bonds, to the publication of the May inflation readings in the U.K., as worse-than-expected figures could lead to a sell-off in these assets and, consequently, to a rebound in their yields.

(Translated from Spanish)

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