Markets Buoyant After Dovish Powell – US Stocks Rise 1%
US stock markets rallied on Friday after Federal Reserve Chair Jerome Powell confirmed that the FOMC will begin cutting rates at its next meeting, speaking from Jackson Hole. The Dow gained 1.14%, the S&P 1.15%, and the Nasdaq surged 1.47% on the day. US Treasury yields dipped again, with the 2-year yield dropping 9.7 basis points to 3.913% and the 10-year yield falling 5.9 basis points to 3.803%. The dollar experienced its biggest drop of the year, reaching an annual low on the index and recording its fourth consecutive weekly decline. Meanwhile, oil and gold prices rallied, with Brent crude gaining 2.33% to $79.02 per barrel, WTI up 2.49% to $74.83 per barrel, and gold climbing 1.1% to close near $2,510. Traders anticipate further upside potential in Asia this morning, especially after increased conflict and tension in the Middle East.
Powell Signals Green Light for Easing
Investors received the confirmation they were hoping for from Fed Chair Jerome Powell, who, speaking from Jackson Hole on Friday, announced that the time is right to start cutting interest rates in the US. The key questions for both the Fed and the market now are how much and how fast, a dilemma that is likely to drive increased volatility across markets in the coming months. The market has been pricing in a nearly 100-basis point drop by year-end, suggesting at least one 50-basis point cut given the three remaining meetings. The twin focuses are on inflation and employment, with the aim of achieving a ‘soft landing’ for the US economy. With Powell confirming that the committee is closely following the data, this week’s PCE figures and next week’s NFP data release will be crucial in determining the size of the rate cut in September.
Quiet Start to the Week for Investors
It’s a quiet start to the week for investors, although more market movements are expected as the sessions progress. Haven assets have seen some gains this morning as Middle East tensions escalated over the weekend, pushing oil, gold, and the yen higher. The Asian session has little on the calendar, and in Europe, only the German Ifo Business Climate data is scheduled, with liquidity expected to be lower due to the London market being closed for a holiday. The New York session will focus on the US Durable Goods data release, but most expect that, barring any significant news events, we should see smoother and positive trading conditions following Friday’s strong performance on Wall Street.
