Published: Sun, December 02, 2018
Markets | By Otis Pena

Stock rally builds in Asia on Powell's dovish tilt

Stock rally builds in Asia on Powell's dovish tilt

The market snapped higher shortly after noon Wednesday after Federal Reserve Chairman Jerome Powell suggested the central bank might consider a pause in its interest rate hikes next year.

Chairman Powell & Co. may continue to project a neutral fed funds rate of 2.75% to 3.00% as 'contacts in many Districts indicated that input costs had risen and that increased tariffs were raising costs, ' and expectations for higher US interest rates instills a long-term bullish outlook for USD/JPY especially as the Bank of Japan (BoC) appears to be on course to carry the Quantitative/Qualitative Easing (QQE) Program with Yield-Curve Control into the year ahead. "Gold will face a longer period of Fed tightening before the interest rate cycle turns in 2019".

"Equities gained as Powell hinted of implementing fewer rate hikes when the economy is still doing well", said Masafumi Yamamoto, chief forex strategist at Mizuho Securities in Tokyo. The 10-year Treasury yield fell with the dollar after the release of Powell's speech in NY. But the likely pace of rate increases next year remains a subject of speculation.

The report noted several signs of resilience in the financial system to the sorts of unexpected shocks that might arise, including the strong capital position of banks, generally tempered borrowing by households and a system less vulnerable to the sorts of runs or credit crunches that almost shut down the global economy in the 2007-to-2009 financial crisis. He added that the Fed regards no major asset class as significantly inflated, "as some did, for example, in the late 1990s dot-com boom or the pre-crisis credit boom". In language following that policy meeting, officials may convey "sufficient softening of future expectations", said Sprott's Reik, who's expecting the central bank to halt rate hikes next year. The reading badly missed market consensus as the number of newly built, unsold homes sitting on the market climbed to its highest level since 2009.

A footnote pointed out the Fed's staff assessed financial stability vulnerabilities as moderate as well.

Bond prices fell. The yield on the 10-year Treasury note rose to 3.07 percent.

U.S., China agree to 90-day trade ceasefire at G20
The leaders finished their talks after about 2-1/2 hours and Trump departed for his scheduled flight back to Washington. Trump told Xi at the start of the meeting he hoped they would achieve "something great" on trade for both countries.

If the body does decide to stick with its initial annual forecast and raises rates to 2.25-2.5 percent, 2018 will mark a milestone in the recovery from the 2008 financial collapse.

Overview: At press time, the December E-minis are trading at 2735.00, firmly between the Daily SMA and Bollinger MP.

Trump argued that the Fed's policies were damaging the economy and pointed to the recent stock market declines and General Motors' announcement Monday that it would cut up to 14,000 workers in North America and put five plants up for possible closure.

Global equity bulls were instilled with a renewed sense of inspiration on Thursday after dovish remarks from Federal Reserve Chair Jerome Powell boosted risk appetite.

The Fed minutes pointed toward the strong likelihood of another quarter-point adjustment in the central bank's benchmark rate target next month.

Analysts think a rate hike next month is all but certain, possibly in part because they think the Fed doesn't want to appear to be bowing to pressure from Trump. Traders were looking for an increase of 0.8%.

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