| Powell's second day, the Wood effect, and predictions of $100 oil. House call The volatility in global bond and equity markets is easing today after Fed Chair Jerome Powell's reassuring comments to the Senate Banking Committee yesterday. He signaled that the central bank is nowhere near pulling back its economic support measures, saying there was still a long way to go to reach their inflation and employment goals. Powell will give testimony to the House Financial Services Panel today. Wood effectArk Investment Management's Cathie Wood snapped up shares in Tesla Inc. as the continuing selloff wiped out the company's share gains for the year. Tesla pared losses to end the session 2.4% lower and is more than 4% higher in premarket trading this morning. The Wood effect was also seen in Bitcoin, which is firmly back over $50,000 for much of the Asian session after she commented positively on the token in a Bloomberg interview. This doesn't mean her flagship funds have escaped the plunge in tech, with ARK Innovation ETF seeing its biggest outflow on record. $100 oil?Continued fiscal and monetary support, coupled with the rapid rollout of vaccines, mean investors are increasingly confident in a strong economic recovery over the horizon. For the oil market this means forecasts of $100 a barrel crude are emerging, less than a year after the commodity traded in negative territory. Goldman Sachs Group Inc. strategists said that the recovery in demand will outpace supply when they increased their third-quarter forecast for the commodity to $75 a barrel. In the market this morning West Texas Intermediate was trading at $62. Markets quietGlobal equites were showing few signs of the recent volatility this morning, with the exception of shares in Hong Kong where a trading tax hike saw shares drop. The MSCI Asia Pacific Index was down 1.8% while Japan's Topix index closed 1.8% lower. In Europe, the Stoxx 600 Index had gained 0.3% by 5:50 a.m. Eastern Time. S&P 500 futures pointed to a small gain at the open, the 10-year Treasury yield was at 1.367% and gold was slightly higher. Coming up... MBA mortgage applications data is at 7:00 a.m., with January new home sales numbers at 10:00 a.m. U.S. crude inventories data are at 10:30 a.m. as well as Powell, we also hear from Fed Governor Lael Brainard and Fed Vice Chair Richard Clarida later. International Petroleum Week continues. Nvidia Corp., Lowe's Cos Inc., ViacomCBS Inc. and TJX Cos Inc. are among the companies reporting results. What we've been readingThis is what's caught our eye over the last 24 hours. And finally, here's what Joe's interested in this morningRates on Treasuries have been rising lately, and with Jerome Powell up on the Hill, there's growing chatter on whether there's some problem emerging. Is the Fed losing control of the curve in some way? Is the market testing the Fed's credibility in its fight for higher inflation and maximum employment? There are lot of takes out there, so be careful. In the meantime, here's one chart that shows how the Fed's strategy is largely working, and that it's easily maintaining the credibility of the market. It also shows how radically different this Fed is than the Bernanke Fed in the wake of the Great Financial Crisis. The three month-three year U.S. yield spread is basically a measure of how fast the market expects the Fed to raise rates over the next three years. When the number is high, the market is pricing in several hikes. When the number is low, the opposite. In the wake of the Great Financial Crisis (the red shaded area in this chart), the spread got as high as around 150 basis points.  Think about what this means. In the midst of a historic collapse, the market was pricing in numerous hikes between 2009 and 2012. Now we know, in retrospect, that the Fed didn't start hiking post-GFC until the end of 2015. So there was just an incredible mismatch between expectations for what the Fed would do post-Lehman and what it actually did in practice. Now, fast forward to today, and the spread is less than 20 basis points. Which means there's not even a full quarter-percent hike expected. Maaaayyyybe we'll get one hike over the next three years according to the market. Maybe. But also again, consider that we're expected to have blazing fast growth this year and next. Goldman has us growing at around 7%, which would be the fastest pace in years.
So here we are with a reopening, stimulus, solid household balance sheets, and the expectation of red-hot growth, and still the market doesn't really see any hikes before 2024. If you thought that maybe the market was testing the Fed, or skeptical of its credibility, this chart should put all that to rest. Joe Weisenthal is an editor at Bloomberg. Like Bloomberg's Five Things? Subscribe for unlimited access to trusted, data-based journalism in 120 countries around the world and gain expert analysis from exclusive daily newsletters, The Bloomberg Open and The Bloomberg Close. | 
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