4:05pm: US equities surge as the S&P 500 and Nasdaq hit record highs once again
US stocks powered higher to finish the day well into the green following dovish comments from Federal Reserve chairman Jerome Powell, who suggested a wait-and-see approach before adjusting policy and tapering asset purchases.
At the session’s end, the Dow gained 242 points, or 0.7%, to 35,455, while the S&P 500 rose 0.9% to 4,509 and the tech-heavy Nasdaq climbed 1.2% to 15,130.
Energy stocks led the S&P’s advance, followed by materials and communication services, as the price of West Texas Intermediate crude oil gushed up nearly 2%.
12:05pm: US markets a sea of green at the midday
Markets reacted positively after the awaited speech from Federal Reserve chair Jerome Powell at the Jackson Hole virtual symposium. Signaling that the Fed was in no rush to wind down stimulus initiatives, the dovish tone sent stocks surging ahead.
By midday the S&P 500 climbed 36 points or 0.81% sending it over the 4,500 threshold to a new high of 4,506. The Dow Jones Industrial Average clawed back yesterday’s losses to add 229 points (0.65%) leaving it at 35,442 over the noon hour.
The NASDAQ also gained 166 points (1.11%) sending it to a high of 15,112, while 10-Year Bond Yields slipped into the red.
The taper reprieve also benefited the gold price which shot to a 60-day high of US$1,809 sending the dollar lower.
While the Fed may remain steadfast for now Neil Wilson, chief market analyst for Markets.com made some key observations.
“In a speech that mentioned inflation 82 times, Powell sought to explain over and over why inflation remains transitory. Methinks he doth protest too much, springs to mind,” the analyst said in a Friday note.
He went on to explain what was gleaned from the head of the Fed’s statement.
“Powell is a dove and wants more time to assess the data on employment, the reasons for using this speech to signal the taper have reduced since the July FOMC,” wrote Wilson. “Critically the ‘substantial further progress’ criterion for the labour market has not been met yet.”
The transitory tone will be key moving forward, as Powell’s speech pointed out there are a number of factors that the Fed will be watching this fall that can potentially affect the labour market.
“The Fed’s conviction that the spike in inflation will be transitory means that policymakers are happy to wait,” Ian Shepherdson, chief economist at Pantheon Macroeconomics said in an email.
He continued: “Chair Powell noted that inflation so far has been driven up almost exclusively by Covid-driven factors, while longer-term inflation expectations haven’t moved much, and broad measures of composition-adjusted wage growth remain unthreatening
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9.45am: US benchmarks start higher
US indices started higher on Friday as traders reacted to economic data, which showed US household finances were in pretty good shape while inflation continues to rise.
Attention is also focused on Jerome Powell's Jackson Hole speech later on Friday.
The Dow Jones Industrial Average added over 96 points at 35,309. The S&P 500 added around 11 at 4,481 and the Nasdaq added 27 points to stand at 14,973.
Household incomes rose 1.1% month-on-month in July this year, which was well above the 0.4% consensus, while wages and salaries rose 1% month-on-month (MoM).
The so-called PCE price index climbed 0.4% in July, while the rate of inflation in the 12 months ended in July edged up to 4.2% from 4%, which was reportedly the biggest increase since the first Gulf War in 1991.
All this means the Federal Reserve, the US central bank, may be more likely to move faster on stimulus easing and interest rate hikes, which could put investors off stocks.
"It is an increasing challenge for the Fed to say with a straight face that inflation is “transitory” and supports an earlier Fed QE tapering strategy while we continue to look for at least one interest rate hike next year," said analysts at financial giant ING.
6.50am: US stocks set for rally
US stocks look set to rally at the start on Friday, recovering some of the previous session's declines as investors await Federal Reserve chairman Jerome Powell’s keynote speech at the central bank's Jackson Hole symposium.
Futures for the blue-chip Dow Jones Industrial Average, the broader S&P 500 index, and the tech-heavy Nasdaq-100 all ticked 0.3% higher, with the major indexes still close to recent all-time highs.
Powell is due to address the symposium in Wyoming at 10.00am ET and his remarks will be streamed online.
Investors will be seeking clues as to when the Fed will scale back its $120 billion in monthly asset purchases and consider raising interest rates. Minutes from the Fed’s late July policy gathering showed that many of the officials thought asset buying could start to slow down by the end of this year.
Craig Erlam, senior market analyst at OANDA Europe commented: "There's been a lot of caution in the markets this week, investors perched on the fence and waiting patiently for the latest thoughts of Fed Chair Jerome Powell. Jackson Hole always gets a lot of attention, something we probably have former Fed Chairman Ben Bernanke to thank for, given his many mic drop moments in the aftermath of the global financial crisis.
"The event always seems to land at an important time for monetary policy so the collection of central bankers and a keynote speech from the Chair naturally attracts a lot of attention. It's a perfect opportunity to lay the groundwork for a big policy shift a few weeks later and at one stage, it appeared that Powell may use this platform for just that purpose.
"But a lot has changed in the last few weeks. The data is showing softness, particularly in the surveys where delta nerves are weighing on expectations as cases surge and fatalities continue to rise at a worrying rate. The economy has bounced back strongly but the committee may not be as aligned on tapering as they seemed after the jobs report."
Erlam added: "While we may have heard some very hawkish views from James Bullard, Robert Kaplan and Esther George on Thursday that triggered some risk aversion in the markets, there are two things all of these have in common. They all typically land towards the more hawkish end of the scale of Fed policymakers and none are voters on the FOMC this year.
"So the comments from Jerome Powell today may not necessarily align with their views. Don't get me wrong, tapering won't be put off for long and a December start may well be on the cards. But Powell may well refrain from saying too much today and instead give the Fed a few more weeks to assess the data ahead of the September meeting.
"Whether investors would welcome the Chair joining the rest of us on the fence and view it as a positive for the markets, we'll see. It leaves plenty open to interpretation. The data over the next few weeks may improve, the Covid trend may reverse itself and provide more comfort for policymakers.
"One thing looks clear, any suggestion that the Fed is happy to proceed with a taper in September may get a nasty reaction in the markets. The Fed could offset this with a commitment to reduce asset purchases at a more gradual pace in order to alleviate concerns. I'm just not sure if that would be enough to alleviate concerns and Powell may not view it as a risk worth taking."
On the data front, the US Commerce Department is due to release measures of consumer spending and the Fed’s preferred inflation gauge at 8.30am ET.
Five other things to watch on Friday:
Reuters exclusively reported that Atlanta Fed President Raphael Bostic has said it would be "reasonable" for the Fed to trim its bond-buying program beginning in October if strong job gains continue, the latest call by a US central banker to start tapering the purchases soon and end them fast.
China plans to propose new rules that would ban companies with large amounts of sensitive consumer data from going public in the US people familiar with the matter told The Wall Street Journal, a move that is likely to thwart the ambitions of the country’s tech firms to list abroad.
Apple Inc. has announced changes to its App Store regulations that will allow software developers to tell customers how to pay for services outside of Apple’s ecosystem, part of a proposed settlement of a class-action lawsuit.
Barclays has said its US arm will buy a $3.8 billion credit card portfolio co-branded with clothing retailer The Gap Inc as the British bank continues a strategy of partnering with big brands to grow in the US.
Video game developer Nexters and a Russian special purpose acquisition company (SPAC) Kismet have completed their business combination to start trading Nexters Inc. shares on the Nasdaq on Friday.