FTSE higher in cautious trading ahead of Fed Powells appearance

Taking the lead from a strong finish on Wall Street and in Asian overnight, the FTSE started the day on the front foot, extending its gains from the previous session. Whilst the Dow closed just shy of 400 points higher, the Nasdaq and the S&P 500 closed 1.7% and 1.6% higher respectively, as concerns over interest rate expectations receded. 

Standard Chartered’ profits jump and dividend returned 

On the FTSE, the gains were fairly broad based. The banking sector was once again in the spotlight as Standard Chartered updated the market. The emerging markets bank reported a return to profit in 2017 and restarted its dividend as a result, after two years of leaving investors empty handed. 

This is a sign of the success of the turnaround implemented by Bill Winters, over the two years that he has headed up the bank. When the current CEO Bill Winters took over the bank two years ago, he halted the dividend payment in an effort to rebuild capital 

There was a lot of hope riding on Winters that he would be the right person to steer the then troubled bank in the right direction and so in many ways this dividend payment is symbolic of his achievements so far. Standard Chartered share price is trading up 1.3% as investors show their appreciation. 

Markets set to take their cue from Fed Chair Jerome Powell 

Looking ahead, Fed Chair Jerome Powell makes his first appearance as head of the Federal Reserve before the House Finance Committee. Investors will be listening closely to what he says during the semi-annual economic testimony as it could provide clues as whether we are going to see a more hawkish or more dovish Fed. 

It’s worth remembering that his appearance comes against a back drop of increased market volatility, caused by fears that the Fed were going to have to raise interest rates more aggressively than initially thought. 

With this in mind Powell is unlikely to want to rock the boat; however, markets will want to see what he has to say about inflation and whether Powell is able to walk the fine line of sounding neither too hawkish nor too dovish. 

Potential Market reaction: 

Going into the meeting US treasury yields were trading off their recent high hitting a low of 2.83 overnight, which enabled Wall Street to rally in the previous session and the dollar pull back. The dollar is seen extending losses, trading down 0.1% at 89.77, heading towards Powell’s appearance. 

A slightly more hawkish tone from Powell, could see yields charge northwards toward the previous high of 2.95 which could lead to another sell off in US equity markets and the dollar push back towards 90.5. 

Meanwhile, a dovish tone could see an extension in the pullback of treasury yields, boosting the US indices and pulling the dollar towards strong support seen at 88.50.