US equity markets have started March on a firmer footing, supported by optimism that the Federal Reserve won’t raise interest rates past the levels already priced into markets.

All eyes now turn to Fed Chair Powell’s Testimony to Congress (scheduled for Wednesday, 2 am Sydney time) and whether the run of robust economic data viewed in January will see the Fed Chairman open the door to a 50bp rate hike in March.

While a small number of Fed hawks have discussed the possibility of a 50bp rate hike (there is 31bp currently priced for March), the centre of the committee has expressed a preference for a more extended sequence of 25bp rate hikes.

Therefore, the Fed Chair will likely look through January’s robust data (the result of unseasonably warm weather), and while he will continue to sound hawkish, it is unlikely he will open the door to a 50bp rate hike.

Of course, should Friday’s non-farm payrolls and next week’s CPI be much hotter than the expected 215k and 0.4%, it may push the FOMC towards a 50bp rate hike in March.

This situation is made more unstable as the February CPI release next week occurs during the FOMC blackout period which will prevent policymakers from pre-signalling a more hawkish view.

S&P 500 technical analysis

Technically the S&P 500’s rebound last week from the 200-day moving average at 3950 has been a positive development and is in line with our central view.

Providing the S&P 500 remains above the 200-day moving average at 3950 (closing basis), we continue to give the rally from the October low (viewed as countertrend or corrective) the benefit of the doubt, looking towards the August 4327 high.

Aware that should the S&P 500 see a sustained close below 3950ish, it would confirm that the rally from the October lows has been corrective, and the downtrend has resumed.

S&P 500 daily chart