4.10pm: US markets in buoyant mood
US markets roared higher in afternoon trading shrugging aside earlier losses following the comments by Federal Reserve Chair Jerome Powell who confirmed that the central bank will slow the pace of its aggressive rate-hiking campaign that has weighed on markets.
At the close and the Dow Jones Industrial Average had soared 738 points, or 2.2%, to 34.590, the S&P 500 surged 122 points, or 3.1%, to 4,080 and the Nasdaq Composite jumped 484 points, or 4.4%, to 11,468.
But Powell also stressed that the smaller hike should not be taken as a sign the Fed will let up on its inflation fight anytime soon.
“It is likely that restoring price stability will require holding (interest rates) at a restrictive level for some time,” Powell said. “History cautions strongly against prematurely loosening policy.”
Powell acknowledged there had been some good news on the inflation front, with the cost of goods such as cars, furniture and appliances in retreat. He also said that rents and other housing costs – which make up about a third of the consumer price index – were likely to decline next year.
But he warned that the Fed still sees the US’s strong labor market as an issue and that the cost of services such as dining out and healthcare are still rising too fast.
“The labor market … shows only tentative signs of rebalancing, and wage growth remains well above levels that would be consistent with 2% inflation,” he said.
“Despite some promising developments, we have a long way to go in restoring price stability,” Powell said.
2.55pm: US markets leap as Powell signals smaller rate increases
US markets shrugged aside early losses to march higher as Federal Reserve Chair Jerome Powell confirmed that the central bank will slow the pace of its aggressive rate-hiking campaign that has weighed on markets.
Heading towards the close and the Dow Jones Industrial Average was up 373 points, or 1.1%, to 34,226, the S&P 500 advanced 76 points, or 1.9%, to 4,033 and the Nasdaq Composite jumped 332 points, or 3%, to 11,316.
“It makes sense to moderate the pace of our rate increases as we approach the level of restraint that will be sufficient to bring inflation down,” Powell said in a speech at the Brookings Institution in Washington, DC.
“The time for moderating the pace of rate increases may come as soon as the December meeting.”
Powell did caution that there was a long way to go in restoring price stability but his comments added to the growing optimism that the Fed will deliver a smaller 50bps rate hike at its next meeting after four consecutive 75bps increases.
12:30pm: Nasdaq Composite seesaws Wednesday morning
At midday, the Dow was down 253 points, 0.8%, to 33,600, the Nasdaq Composite fell 10 points to 10,973 and the S&P 500 slid 17 points, 0.4%, to 3,941.
The Nasdaq Composite has endured a pair of major peaks and valleys Wednesday as investors have grappled with potential conflicting economic data. ADP, the payroll processing firm, reported fewer job openings in October than expected. However, Labor Department data suggested that there were still more jobs available then workers to fill them.
“The data was somewhat mixed,” said Edward Moya, senior market analyst at Oanda, as reported by CNBC. “But it does show there’s a lot of resilience in this economy. And it still is highlighting a labor market that is weakening, but is still in relatively good shape. I think that we’re not going to get any answers on what will policy be like at the end of next year based on these reports.”
Federal Reserve chairman Jerome Powell is expected to speak at 1:30 pm ET this afternoon.
9:35am: Private employment figures fall short of expectations
US stocks edged slightly higher on Wednesday as caution prevailed ahead of Fed chair Jerome Powell’s highly anticipated speech this afternoon.
Just after the market opened, the Dow Jones Industrial Average had added 5 points or 0.01% at 33,858 points, the S&P 500 was up 3 points or 0.1% at 3,960 points, and the Nasdaq Composite had added 13 points or 0.1% at 10,995 points.
Meanwhile, there are some signs the US labor market may finally be softening amid rising interest rates as private payrolls increased less than expected in November.
According to the latest ADP National Employment report released today, private employment increased by 127,000 in November, down from the unrevised 239,000 jobs added in October and below the 200,000 consensus analyst expectation per Reuters.
Looking ahead at Friday’s non-farm payrolls report, City Index and Forex.com global head of market research Matt Weller said a particularly strong or weak jobs report, especially if confirmed by high inflation data in the first half of December, could prompt the Fed to change its interest rate hike path.
“Based on the limited figures we have access to, there’s some evidence that the labor market has deteriorated over the last month,” Weller said.
“The four-week moving average of initial unemployment claims has ticked up, while the just-released ADP employment report showed just 127,000 net new jobs were created in November, the lowest reading since January 2021.”
6:30am: All eyes on Powell
US stocks are expected to open slightly higher on Wednesday as investors eye Federal Reserve chairman Jerome Powell’s key speech on the outlook for the US economy and labor market.
Futures for the Dow Jones Industrial Average were flat in pre-market trading, while those for the S&P 500 were 0.2% higher, and contracts for the Nasdaq-100 gained 0.3%.
“What will Jerome Powell say? Well, he will say that the pace of the US rate hikes will slow. But he will also say that the Fed is not done fighting inflation and that the terminal Fed rate will likely be higher,” noted Ipek Ozkardeskaya, senior analyst at Swissquote Bank.
The Federal Reserve has delivered four 75 basis point interest rate hikes in as many meetings this year as it tries to curb runaway inflation levels. With headline inflation now starting to ease from 40 year highs, investors are holding out hope that the pace of interest rate increases will also start to slow and will be acknowledged by Powell in today's speech.
Powell is due to speak at a Brookings Institution event at 1.30pm ET.
“The US yield curve remains inverted, and the spread between the US 3-month and 10-year yield continues widening, hinting that an upcoming recession in the US could further help ease inflationary pressures,” added Ozkardeskaya.
Today also brings a whole raft of economic data which could have an impact on market activity.
“Investors will be watching the update on US GDP, expected to be revised slightly higher, the US job openings, expected to remain above 10 million and hinting at a still solid job environment, and the November ADP report, expected to reveal around 200’000 new private jobs added during last month,” said Ozkardeskaya.
Further ahead, Thursday will bring the Fed’s favorite inflation gauge, the PCE data, which will show how much inflation eased in October, and on Friday the pivotal US non-farm payrolls are due.
The recent focus on developments in China, where ordinary citizens are protesting the government’s stringent zero-covid policy, continues but the appetite for Asian equities has improved slightly on the back hints that China could ease its Covid curbs in response to the protests. Notably, Nasdaq’s Golden Dragon China index rallied 5% yesterday.
Contact the author at jon.hopkins@proactiveinvestors.com