Marketmind: Powell's prudence spurs a sell-off

A look at the day ahead in European and global markets from Ankur Banerjee

A sizzling U.S. jobs report and an interview with Federal Reserve Chair Jerome Powell have quashed any lingering expectations of early rate cuts by the Fed, triggering a broad-based stock sell-off in Asia and leading bond yields higher.

In an interview with the CBS news show "60 Minutes", Powell said the U.S. central bank can be "prudent" in deciding when to cut interest rates, with a strong economy allowing policymakers time to build confidence that inflation will continue falling.

"We have to balance the risk of moving too soon ... or too late," Powell said.

The interview took place on Thursday, before a blowout January jobs report on Friday showed resilience in the U.S. economy and sent Treasuries lower. That sell-off has continued in Asia, with bond prices in other markets also sliding.

After the Fed surprised the markets with a dovish tilt in December, projecting 75 basis points of cuts in 2024, traders began pricing in March as the starting point for the central bank's expected easing cycle.

But a series of strong labour data, culminating in Friday's payrolls report, and Powell's pronouncements over the past week have raised doubts.

Investors are now pricing in an 82% chance of the Fed standing pat on rates in March, the CME FedWatch tool showed, compared with 33% at the start of the year. They also foresee nearly 120 basis points of cuts for the whole year, down from 150 bps a month ago.

The reality check on the rate outlook lifted the dollar to an eight-week high against other major currencies, while the yen slipped to a two-month low. Asian equities slid, with stocks in China stuck in the doldrums. [FRX/]

All that sets up a muted open for European bourses, futures indicate, with a series of PMI releases on deck that will showcase the health of Europe's economy and offer clues on the outlook for the European Central Bank's rate moves.

From the music world, pop superstar Taylor Swift won the Grammy award for album of the year, becoming the first artist to win the top music industry prize four times.

Key developments that could influence markets on Monday:

Economic events: Germany trade data for December; January PMI data for France, Germany, UK and euro zone; Dec producer prices for euro zone

(By Ankur Banerjee; Editing by Edmund Klamann)