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Jerome Powell’s dovish remarks boosted stock markets


US stocks rallied sharply on Wednesday, witnessing fresh buying and extending the daily rally as Jerome Powell signalled a slowdown in the pace of tightening as early as December while indicating more hikes to fight inflation. The dovish comments from Federal Reserve (Fed) Chairman Jerome Powell provided strong support to the equity markets, as he was dovish while saying it makes sense to moderate the pace of interest rate increases and added that the monetary policy would need to remain restrictive for some time.

Additionally, Powell said that the time to slow the pace of rate hikes could come as soon as the next meeting in December and he does not want to over-tighten. Powell’s comments likely cement expectations for the Fed to hike by 50 basis points in December, following four straight 75 basis-point moves. However, rates are likely to reach a somewhat higher level than officials estimated in September. On the Eurozone front, European inflation fell for the first time in seventeen months, as the Euro Area annual Harmonized Consumer Price Index printed at 10% in October.

The benchmarks, S&P 500 and Dow Jones Industrial Average both advanced higher on Wednesday as the S&P 500 hit a two-month high and notched the longest monthly winning streak since August 2021 amid all the optimism. The S&P 500 was up 3.1% on a daily basis and the Dow Jones Industrial Average climbed higher with a 2.2% gain for the day. All of the eleven sectors in the S&P 500 stayed in positive territory as the Information Technology sector and the Communication Services sector are the best performing among all groups, losing 5.03% and 4.91%, respectively. The Nasdaq 100 meanwhile advanced the most with a 4.6% gain on Wednesday and the MSCI World index was up 2.5% for the day.

Main Pairs Movement

The US dollar slumped sharply on Wednesday, suffering from daily losses and dropped towards the 105.80 level amid US Federal Reserve Chair Jerome Powell’s dovish comments. The policymaker stated that it makes sense to moderate the pace of interest rate increases while also suggesting that the time to slow the pace of rate hikes could come as soon as the next meeting in December. Therefore, the chances of a 50 bps rate hike in December increased from 69.9% ahead of the speech to above 75%.

GBP/USD advanced higher on Wednesday with a 0.89% gain after jumping above the 1.2030s area as the Fed pivots to lower hikes. On the UK front, the Bank of England (BoE) Chief Economist Huw Pill said inflation is expected to fall quickly in the second half of 2023 while supply chain issues are being solved. Meanwhile, EUR/USD regained upside traction and jumped from weekly lows of 1.0290 amid a weaker US dollar across the board. The pair was up almost 0.74% for the day.

Gold rallied sharply with a 1.07% gain for the day after posting the biggest daily jump in three weeks around the $1,775 level during the US trading session, as the dovish comments from Fed Chairman Jerome Powell and optimism surrounding China both support the precious metal. Meanwhile, WTI Oil advanced sharply with a 3.01% gain for the day.

Economic Data

CurrencyDataTime (GMT + 8)Forecast
CNYCaixin Manufacturing PMI (Nov)09:4548.9
EURGerman Manufacturing PMI (Nov)16:5546.7
GBPManufacturing PMI (Nov)17:3046.2
USDCore PCE Price Index (MoM) (Oct)21:300.3%
USDInitial Jobless Claims21:30235K
USDISM Manufacturing PMI (Nov)23:0049.8