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Saturday, June 3, 2023

Stocks Rise as Powell Sees Inflation Progress: Markets Roundup

(Bloomberg Opinion) — U.S. stocks rose on Treasuries after Federal Reserve Chairman Jerome Powell said the central bank has made progress in its battle against inflation, even as he warned that inflation is likely to be justified. additional rate increases.

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The S&P 500 jumped more than 1% after Powell said “the disinflation process has begun,” suggesting that the aggressive tightening cycle is beginning to have the desired effect of slowing price growth. Nasdaq 100 gains topped 2%.

Stock futures extended gains after the cash close as Meta Platforms Inc. reported sales that beat estimates on strong advertising demand. Shares of Facebook’s parent company rose 18% in recent trading.

While mega-cap gains continue to rise, the latest Fed policy decision and comments from Powell dominated sentiment during the regular session. The two-year yield fell as much as 12 basis points to 4.08%, while the 10-year rate touched 3.38%. A dollar index fell to its lowest level since April. Swap traders are now pricing in a rate cut of around half a percentage point in the second half of the year.

Read more: Powell keeps fire on markets breaking free of Fed control

Market optimism flourished when Powell evaded a question about the recent easing of financial conditions, a measure of market stress that the central bank monitors to determine the effectiveness of its policies. He said the focus “is not on short-term moves but on sustained changes.” Investors had been bracing for harsh comments from the Fed aimed at cooling a recent surge in risk assets that could complicate its fight against inflation.

“Powell has said that financial conditions have tightened considerably even though they have eased considerably. The fact that he said this is moderate in its own right,” wrote Neil Dutta, head of economics at Renaissance Macro Research. The odds are rising that the Fed is “declaring victory too soon,” Dutta said. “The Fed’s flirtation with a soft landing today increases the risk of a harder landing later.”

The Fed’s message was not without warnings for financial markets. The central bank said ongoing rate hikes would likely be justified and officials were discussing a couple more hikes to get policy tight enough to push back inflation. The 4.5% to 4.75% federal funds rate is still more than 25 basis points below where officials said in December they expected it to peak.

“The Fed is essentially speaking both sides of its mouth, having signaled that further increases are appropriate, but also acknowledging that it will consider the cumulative amount of tightening in future policy decisions,” wrote Charlie Ripley, senior investment strategist at Allianz. Investment Management. in a note

Ripley said the Fed’s comments indicate it is near the end of its tightening cycle and “ready to stand by while economic data catches up with politics.”

But markets may be fighting the Fed again on Wednesday, according to Ronald Temple, chief market strategist at Lazard.

Powell’s comments, when taken alongside Wednesday’s data showing rising job postings, make Temple “believe that markets are still too dovish on how high rates will go and how long they will stay there.” ”.

Key events this week:

  • Eurozone ECB interest rate decision, President Christine Lagarde press conference, Thursday

  • UK BOE rate decision, Thursday

  • US Factory Orders, Initial Jobless Claims, US Durable Goods, Thursday

  • Thursday’s earnings include: Alphabet, Apple, Amazon, Qualcomm and Deutsche Bank and Santander

  • Eurozone S&P Global Eurozone Services PMI, PPI, Friday

  • US Unemployment, Nonfarm Payrolls, Friday

Some of the main movements in the markets:


  • The S&P 500 rose 1.1% at 4:01 p.m. New York time.

  • The Nasdaq 100 rose 2.2%

  • The Dow Jones Industrial Average was little changed

  • The MSCI World Index rose 0.7%


  • The Bloomberg Dollar Spot Index fell 0.8%

  • The euro rose 1.2% to $1.0988

  • The British pound rose 0.4% to $1.2373

  • The Japanese yen rose 1% to 128.84 per dollar


  • Bitcoin rose 2.7% to $23,573.78

  • Ether rose 3.7% to $1,635.55


  • The yield on the 10-year Treasury fell 11 basis points to 3.40%

  • Germany’s 10-year yield was little changed at 2.28%

  • Britain’s 10-year yield fell three basis points to 3.31%

raw Materials

  • West Texas Intermediate crude fell 2.5% to $76.90 a barrel

  • Gold futures rose 1% to $1,965.30 an ounce.

This story was produced with the assistance of Bloomberg Automation.

–With assistance from Robert Brand and Peyton Forte.

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©2023 Bloomberg L.P.

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