Will Cunliffe
Research Analyst, The Officials
Powell Goes Out Hawkish, Strong US Data, Fertiliser Markets
Hawkish Fed split lifts yields, dollar; Treasuries heavy; strong data, Big Tech beats; wheat jumps on energy-driven fertiliser shock
Powell went out hawkish.
The Fed left rates at 3.50%-3.75%, but the real signal was the 8-4 split, the most dissents since 1992, which pushed Treasury yields and the dollar initially higher and shut the door, for now, on a clean dollar selloff. Powell also said he will remain on the Board after May 15, warning Fed independence is “at risk.” For FX, any meaningful optimism on EUR/USD looks premature, with the cross trading below $1.17 at the time of writing. Even a hawkish ECB hold is unlikely to sustainably rescue the euro if stagflation risks keep building (Figure 1).
After an aggressive move yesterday Treasuries have consolidated, as profit-taking and hedging flow starts to limit further upside in yields. The long end remains heavy, with the 10-year holding above 4.41% and the 30-year touching 5.00%, leaving the market vulnerable after a number of auctions tailed this week. The earlier 2-year auction tailed by 0.1bp and the 5-year by 0.5bp. Tuesday’s 7-year also tailed by 0.5bp. It cleared at a 4.175% high yield versus a 4.170% when-issued yield. Across all auctions bid to cover seems to be holding up for now. Today we have $155 bn of bill auctions.
US data yesterday was generally quite strong, with March housing starts up to over 1.5 million – above expectations and February’s figure. Durable goods orders in March showed strong growth at 0.8% m/m, above 0.5% expected. This was driven by computer and electronic product orders, indicating strong AI demand. Big Tech’s earnings last night were generally very strong, as the likes of Amazon, Microsoft and Meta beat expectations. Even so, Meta stock dropped about 6.6% as it underperformed rivals.
US wheat prices are starting to move – and the driver runs straight back to energy (Figure 2). Futures jumped 4.1% to ~$6.58/bushel, the highest since mid-2024, taking gains to roughly +30% YTD. The immediate story is drought. Only 30% of the US crop is rated good or excellent, while heat stress is accelerating development. But the deeper pressure sits upstream: fertiliser. Global fertiliser markets have been heavily impacted by the disruption in the Strait of Hormuz. The Middle East is a critical supplier of nitrogen and ammonia-based products, with countries such as Qatar, Saudi Arabia, and United Arab Emirates – roughly 15–20% of globally traded fertilisers transit through the Gulf. With tanker traffic constrained, fertiliser exports are tightening just as demand peaks ahead of planting cycles.
Data today: Euro Area inflation, Bank of England and ECB rate decisions, US Q1 GDP Adv, PCE
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