US stocks rally after Fed chair points to smaller rate increase


US stocks rose on Wednesday after a speech by Federal Reserve chair Jay Powell in which he suggested that it may be appropriate to slow the pace of interest rate increases in December, but otherwise reaffirmed the central bank’s clear commitment to stamp out inflation.

As Powell spoke, stocks turned green with Wall Street’s benchmark S&P 500 index up 1.4 per cent on the day and the tech-heavy Nasdaq Composite up 2.5 per cent. Both indices are on track to record their first streak of back-to-back monthly gains since 2021.

In his speech, Powell said that the Fed has “more ground to cover” in tightening monetary policy and cautioned against reading too much into the latest US inflation report, which earlier this month undershot expectations for the first time in months.

However, Powell also suggested that the US central bank is preparing to slow the pace of interest rate rises to 0.5 percentage points when its monetary policy committee gathers next month, after a string of 0.75-point increases.

In a discussion after the speech, he added that he believes there “is a path to a softish landing” in which labour markets cool but the economy does not enter a recession.

The yield on the two-year Treasury note, which moves with interest rate expectations, dipped 0.06 percentage points to 4.42 per cent, while investors in the futures market raised expectations of interest rate cuts by the end of 2023.

Powell’s remarks followed government data released earlier on Wednesday that showed a decline in job openings in October, indicating that existing monetary tightening has slowed down the labour market.

Global stocks have rallied in recent weeks as investors bet that policymakers will get inflation under control. The FTSE All-World index has risen 11 per cent since the start of October and the S&P 500 has gained more than 10 per cent over the same period, erasing some of the steep losses inflicted earlier in 2022.

The MSCI Asia-Pacific index has ticked up 13.9 per cent in November, its biggest 30-day gain in at least 10 years, Bloomberg data show.

Commodities prices, factory gate prices and inflation expectations have all begun to slide from their record levels in recent weeks, suggesting to some that the pace of headline price growth is set to slow in 2023.

Declining energy prices helped annual eurozone inflation fall more than expected to 10 per cent in November, down from a record 10.6 per cent in October, according to data released on Wednesday. Economists polled by Reuters had predicted a 10.4 per cent rise.

“Today’s data suggests that headline inflation has peaked but that underlying price pressures will indeed persist for some time,” said Frederik Ducrozet, head of macroeconomic research at Pictet Wealth Management.

European stocks rose on Wednesday, with the regional Stoxx Europe 600 up 0.6 per cent and London’s FTSE 100 gaining 0.8 per cent.

Analysts at Bank of America nevertheless believe some investors may have got ahead of themselves. “Markets are in denial, particularly equities,” they said in a note this week.

“Clearly, Fed action is going to be the driving factor for every asset class over the coming weeks,” said Neil Birrell, chief investment officer at Premier Miton, an asset management company.

In Asia, Hong Kong’s Hang Seng index gained 2.2 per cent after rising sharply in the previous session, as investors bet that China would push ahead with reopening plans following anti-lockdown protests. China’s CSI 300 added 0.1 per cent.


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