Shares rise as Fed weighs inflation risks, yields steady

The three indexes were pretty much on an upswing all day with the Dow and Nasdaq with very respectable 3-digit gains and the S&P up there too.  All this was due to the fact Powell parsed his remarks today so that, whether bear or bull, you heard something you liked. In fact, he didn’t really say anything different and under usual circumstances he should have triggered a sell-off for his usual remarks of “more hikes possible, but watching the data,” but today managed to phrase things so that everyone was happy. (Gee, maybe he should run for president.) Volume remains below average at 9.2 billion. 

Shares rise as Fed weighs inflation risks, yields steady

By Samuel Indyk and Koh Gui Qing

Fri August 25, 2023 4:58 PM

DJ: 34,099.42  -373.56        NAS: 13,463.97  -257.06        S&P: 4,376.31  -59.70      8/24

DJ: 34,346.90  +247.48       NAS: 13,590.65  +126.67       S&P: 4,405.71  +29.40     8/25

NEW YORK/LONDON, Aug 25 (Reuters) - World stocks eked out gains on Friday as investors, shrugging off bets for a more dovish tone, took comfort from a balanced message from the Federal Reserve that the inflation fight is not over, but it will proceed "carefully" in its next move.  In remarks delivered at the central bank conference in Jackson Hole, Wyoming, Fed Chair Jerome Powell said inflation was still too high even with recent favourable readings, and that the U.S. central bank has substantial ground to cover to regain price stability.  But at the same time, Powell noted that economic uncertainty called for "agile" monetary policy making, and that the Fed will proceed "carefully" when deciding its next policy move.

"There was a little something for everybody. If you're a bear, you heard him say we're going to be restrictive, and we might hike rates," said David Sadkin, president at Bel Air Investment Advisors.  "If you're a bull, you heard him say, we're making progress against inflation and we still expect there to be a lag in from the effects of monetary policy, and we could be on hold."  The remarks led U.S. stocks to gyrate between modest gains and losses before jumping higher towards the end of the session.

The Dow Jones (.DJI) gained 0.73%, the S&P 500 (.SPX) rose 0.67% and the Nasdaq Composite (.IXIC) gained 0.94%.

Gains on Wall Street lifted global stocks, and the MSCI All Country stock index (.MIWD00000PUS) edged 0.12% higher.  U.S. bond investors nonetheless dialled back their bets of a rate hike in November and December following Powell's remarks, though Treasury yields traded near break-even by late morning.  The yield on 10-year Treasury notes was steady at 4.2314% and the two-year yield, which reflects interest rate expectations, rose to 5.0735%. 

European shares (.STOXX) also gave up earlier gains to end flat, and the euro at one point fell to its lowest since mid-June on expectations that the European Central Bank could pause its tightening cycle next month. The euro pared its losses by the end of the day to be down 0.12% at $1.07965.  ECB policymakers are increasingly concerned about deteriorating growth prospects and momentum for a pause in its rate hikes is building, Reuters reported, citing sources with direct knowledge of the discussion.

Markets are split almost evenly on whether the ECB will hike at its meeting next month, compared with around a 60% chance of a hike before weak activity data was published earlier this week. 

"We've seen a back-off in ECB rate hike expectations. The trillion dollar question is how much validation and support that gets from (ECB President Christine) Lagarde today," said Ben Laidler, global markets strategist at eToro.  Powell's message on Friday lined up with the mixed signals by other Fed officials in the final run-up to the conference.  Philadelphia Fed President Patrick Harker told CNBC he doubted the central bank would need to raise rates again, but also indicated he was not ready to predict when rate cuts might begin. Boston Fed President Susan Collins said on Yahoo Finance's video channel that rates may be near or at a peak, "but certainly additional increments are possible."

In energy markets, crude prices rose on Friday but remained on track for weekly declines. Brent crude rose $1.42, or 1.7%, to $84.78 a barrel, while U.S. West Texas Intermediate crude was up $1.02, or 1.29%, at $80.07 a barrel. 

Per the CBOE, volume came in at 9.2 billion.