- Stocks rallied on Wednesday after Federal Reserve Chair Jerome Powell told Congress that trade and global growth concerns “continue to weigh on the US economic outlook.”
- Powell’s comments tempered concerns that excellent US employment figures might lead the Fed to take an expected interest-rate cut off the table.
- “Jerome Powell’s outlook on the domestic economy and his comments on whether a rate cut is needed at this stage is all investors care about,” said Konstantinos Anthis, head of research at ADSS.
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Stocks rallied on Wednesday after Federal Reserve Chair Jerome Powell said the US-China trade war and slowing global growth are weakening the US economy, raising hopes for a cut to interest rates later this month.
“It appears that uncertainties around trade tensions and concerns about the strength of the global economy continue to weigh on the US economic outlook,” Powell said in his semi-annual testimony to Congress.
Investors had expected the Fed to lower the federal funds rate by 25 basis points (0.25%) to around 2%, but grew worried the central bank would hold off after excellent non-farm payroll figures last week. The employment data showed the US economy added 224,000 jobs in June, about a third more than predicted and roughly triple the figure for May.
“Jerome Powell’s outlook on the domestic economy and his comments on whether a rate cut is needed at this stage is all investors care about,” said Konstantinos Anthis, head of research at ADSS. “Despite the robust NFPs last week, there are simply too many signs of slowdown in several sectors of the economy for the Fed to do nothing and risk falling behind the curve.”
However, Powell shouldn’t act too aggressively given the lack of a “looming recession” and the Fed’s “little room to maneuver” with interest rates already below historic levels, Anthis added.
President Donald Trump’s repeated calls for the Fed to cut rates have also complicated matters.
“The mounting political pressure on the Fed’s policy may toughen Powell and his team’s job,” said Ipek Ozkardeskaya, senior market analyst at London Capital Group. “Signaling more interest rate cuts at this point may put the central bank’s independence in jeopardy.”
Here’s the market roundup as of 9:45 a.m. ET:
US markets opened higher with the Dow Jones Industrial Average up 0.5%, the S&P 500 up 0.6%, and the Nasdaq up 0.8%.
European equities were broadly higher with the Euro Stoxx 50 up 0.4%, Britain’s FTSE 100 up 0.2%, and Germany’s DAX almost flat.
Asian indices closed broadly lower with the Shanghai Composite and SZSE Component down 0.4%, and Japan’s Nikkei down 0.2%. Hong Kong’s Hang Seng rose 0.3%.
Oil prices have surged with West Texas Intermediate crude up 3% at $59.60, and Brent crude up 2.7% at $65.90.
Gold has climbed 0.8% to $1,411.
Bitcoin has jumped 5.5% to around $13,065.