US equities rose after Federal Reserve chair Jay Powell spoke for the first time since January’s blockbuster employment data sent a chill through markets.
In a question-and-answer session with the Economic Club of Washington, Powell on Tuesday warned the US central bank may need to raise rates more than expected. But the remarks were less hawkish than some investors had anticipated, and the reaction in markets was one of relief.
After a bout of choppy trading that briefly dragged stocks into negative territory, US equities rallied to close higher. The benchmark S&P 500 rose 1.3 per cent and the tech-heavy Nasdaq Composite gained 1.9 per cent.
The Bureau of Labor Statistics last week reported the US had added more than half a million jobs in January, roughly triple what economists had expected. The unemployment rate fell to 3.4 per cent, the lowest level in 53 years.
Investors had forecast that the hot labour market data would inspire hawkish rhetoric from the Fed boss. But Powell was seen to have largely reiterated the commentary he made last Wednesday when the central bank’s policymaking body slowed the pace of its interest rate raises, delivering a 0.25 percentage point increase.
Guy LeBas, chief fixed-income strategist at Janney Montgomery Scott, said: “Fundamentally, Powell’s Q&A was more meaningful in what he chose not to say. Last week we had the Fed provide a pretty dovish hike. The new information was Friday’s payrolls information. And Powell chose to not turn more aggressive in the face of a very strong payrolls report.”
“He was given several opportunities to turn more hawkish and he did not,” LeBas said.
But the yield on the two-year Treasury yield, which moves with interest rate expectations, was roughly flat at 4.47 per cent. The two-year yield has jumped since Friday’s jobs report, rising to its highest level in a month. The persistence of that move suggests a less-ebullient mood among fixed-income investors.
The dollar index, which tracks the US currency against a basket of six peers, fell 0.2 per cent.
European stock markets paused from two days of selling, with Europe’s benchmark Stoxx 600 index closing up 0.2 per cent. Germany’s Dax, which has risen 9 per cent this year on hopes of a milder economic slowdown, finished down 0.2 per cent. The FTSE 100 was a standout performer, up 0.4 per cent after strong earnings from oil major BP.
Meanwhile, Asian stocks rose, with the Chinese CSI 300 rising 0.2 per cent. Hong Kong’s Hang Seng index closed 0.4 per cent higher.
