Wall Street stocks rise as Jay Powell points to economic resilience

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Shares on Wall Street rose on Wednesday as investors weighed comments from the Federal Reserve Chairman who signaled that the U.S. economy may be strong enough to withstand further interest rate hikes.

The S&P 500 gained 0.5% after Fed Chairman Jay Powell began a two-day testimony before lawmakers. The moves extended gains from the previous session, when the S&P rose 2.5% as traders searched for bargains after a steep weekly decline.

The tech-heavy Nasdaq Composite stock index rose 0.8% on Wednesday, but remained nearly 30% lower for the year.

Powell told the U.S. Senate Banking Committee on Wednesday that “the U.S. economy is very strong and well positioned to handle tighter monetary policy.” But he also warned of “further surprises” from inflationary trends.

Last week, the Fed raised its main interest rate by 0.75 percentage points, the highest since 1994, after consumer price inflation in the United States hit a 40-year high in may.

But, so far, Powell’s testimony had broken “no new ground after last week’s political action,” said Pantheon Macroeconomics chief economist Ian Shepherdson. He also noted that Powell may have brought some relief to markets without “any specific mention” of plans for another very big rate hike in July.

Money markets are implying that the Fed will raise its main policy rate to around 3.6% this year as investors fear the combination of rising inflation and rising borrowing costs could threaten corporate earnings and Economic Growth. The annual pace of consumer price inflation in the United States hit 8.6% last month after Russia’s invasion of Ukraine pushed up energy and food prices food.

On Thursday, the closely watched Purchasing Managers’ Indexes produced by S&P Global – which collate executives’ responses to questions on topics such as input costs and order volumes – are expected to show that business activity has slowed in the United States and the euro area.

“We are looking for both the manufacturing and services PMIs to provide further signs of weakness,” TD Securities analysts said in a note to clients.

The yield on the 10-year US Treasury, which moves inversely to its price and underpins global debt pricing, fell 0.16 percentage points to 3.14% on Wednesday as demand for the low-risk asset was increasing.

The UK gilt equivalent yield fell 0.18 percentage point to 2.47%, after data showed UK inflation hit 9.1% last month, raising fears of a recession.

In Europe, the Stoxx 600 stock index fell 0.5%, recovering from larger losses earlier in the day before Powell’s testimony. A FTSE index of Asia-Pacific stocks excluding Japan fell nearly 2%, with Tokyo Topix closing down 0.2%.

The Japanese yen also fell to a 24-year low of ¥136.71 against the dollar as traders bet the Bank of Japan will keep borrowing costs ultra-low, in defiance of the global trend.

Benchmark Brent crude, which has risen sharply this year as Western powers imposed sanctions on Russian exports, fell 4.7% to $104.31 a barrel.

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