ASX set to decline despite more gains on Wall Street

On the losing side was Tesla, which fell 2 percent. Over the weekend, it lowered the prices of two of its most expensive vehicles.

Bigger action could be on the horizon later this week, with several potentially market-moving events on the calendar.

Fed Chair Jerome Powell will testify before Congress for two days starting Tuesday. Comments from other Fed officials have caused major swings in markets recently as traders try to forestall the Fed’s next moves.

Brian Jacobsen, senior investment strategist at Allspring Global Investments, doesn’t expect the statement to come as a surprise. That’s partly because a key data release is slated for later in the week on Friday, one that in itself could create a major shift in Fed thinking.

At that time, the government will publish its latest monthly employment report. If the reading comes out stronger than expected, especially if it shows a big wage hike, it could rock Wall Street and force it to raise interest rate expectations even more.

The Fed has attempted to dampen wage growth to ease pressure on inflation, which is well above its 2% target, and the blowout numbers could prompt it to become more aggressive on rates.

The next rate hike by the Fed will come later this month. Along with Friday’s jobs report, upcoming releases on inflation across the economy will likely also weigh heavily on the decision.

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The Fed has raised its key federal funds rate to a range of 4.50 percent to 4.75 percent, from virtually zero at the beginning of last year, in the fastest rate hikes in decades. Over the past month it has scaled back the size of its hikes, highlighting the progress made in the fight to bring down inflation.

But that was ahead of a string of hotter-than-expected inflation and other economic data last month. Wall Street is now bracing for at least three more rate hikes and the possibility that the Fed could hike again as well.

“In my view, I don’t think they need to go any higher,” said Jacobsen, who sees last month’s strong economic data as a bump in inflation’s downward trend rather than a change in momentum.

“The real goal would be to stay at cruising altitude for as long as possible. The higher they go, the more likely they are to find that they want to lower rates.”

That’s because it can take a long time for rate hikes to penetrate the economy and take full effect. Some parts of the economy, including housing and manufacturing, have already felt pain from higher interest rates. Meanwhile, the services side of the economy is still on the upswing.

Jacobsen believes the economy is headed for a relatively short and shallow recession. But all of the economy’s recent strength also leads him to believe the economy is in the midst of a rolling recession, with some parts weakening while other parts remain strong enough to keep the whole just outside of a widespread downturn.

AP