12 Feb FRB TESTIMONY WAS LARGELY AS EXPECTED
FRB Chair’s testimony was largely as expected. Powell stated that the Committee is monitoring the coronavirus, signaling it out among risks threatening the economy. The Chairman characterized the economy “as strong,” inflation is “trending to goal,” and the labor market as “robust.” Powell made some generic comments about the repo market stating that liquidity is ample because of Fed intervention.
There was little market reaction to his remarks.
Speaking of the repo market, the FRB of New York started today’s auction was oversubscribed by a factor of two for the third consecutive day. All are asking why?
Regarding inflation, the NFIB small business optimism topped expectations. The compensation gauge saw the biggest spike in its history. Wow! Is this a harbinger of things to come? FRB Chairman Powell stated wage gains are greatest at the lowest end of the spectrum.
Wages are the largest cost of production. Will these gains begin seeping into the general economy or will companies absorb these costs, an absorption that will impact margins?
Equities trimmed gains following the FTC’s request for information from the largest technology companies about acquisitions that may have eliminated new competitors. In my view today’s mega sized technology companies are only entering into the regulatory abyss, an abyss that will be expensive and transformational.
What will happen today?
Last night the foreign markets were up. London was up 0.37%, Paris up 0.40% and Frankfurt up 0.78%. China was up 0.87%, Japan up 0.78% and Hang Sang up 0.87%.
The Dow should open nominally higher as China reported the lowest number of new coronavirus cases this month. The 10-year is off 4/32 to yield 1.62%.