Powell-statements influence Wall Street
Statements from Fed Chair Powell leave Wall Street traders initially uncertain after US Congress testification. However, many now see a rate cut as likely in September and are accordingly in buying mode.
The latest statements from Fed Chair Jerome Powell have reinforced investors' rate hike expectations on Wall Street. The Dow Jones Industrial Average of blue-chip stocks closed 1.1% higher at 39,721 points. The technology-heavy Nasdaq retreated 1.2% to 18,647 points. The broad-based S&P 500 gained 1.0% to 5633 levels.
The US Federal Reserve, according to Powell's perspective, will ultimately win the battle against high inflation. He is "fairly optimistic" that the Fed's target of a 2% inflation rate will be achieved, Powell told the Financial Services Committee of the US House of Representatives. Despite the recent decline in inflation, the Fed Chair is not yet ready to speak of a sustained decline towards the target. In his testimony to the other Congressional chamber, the Senate, he said that "more good data" is needed to strengthen confidence.
"Yesterday there was some uncertainty, but a day later we heard from the central bank chief that the Fed does not see inflation as the only risk," noted Konstantin Oldenburger, an analyst at broker CMC Markets. "In fact, the unemployment rate in June rose to 4.1%, above the Fed's forecast of 4% by year-end." Currency traders are trying to contain inflation and cool down the overheating labor market with high interest rates without choking the economy.
The Dollar Index was slightly in the red at 105.01 points. The Euro gained 0.1% to 1.08 dollars. The yield on the ten-year US Treasury bonds, however, recovered some of its gains after Powell's initial statements and stood at 4.282% compared to 4.300% the previous day.
Concerns about price development in China fuel deflation fears
However, investors looked anxiously towards China: Despite the economic recovery, the risk of a deflationary shock to the economy is not yet quelled. Consumer prices in the People's Republic rose for the fifth consecutive month in June. Given the still weak demand, the increase of 0.2% over the previous year was very low compared to the expectations of economists surveyed by Reuters. These data could not allay fears of deflation, which can harm the economy by causing falling prices and reduced consumption and investment.
Questioned individually, there was interest in the stocks of chip companies. The papers of industry heavyweights Nvidia and Micron gained up to 4%. The background was positive quarterly figures from the Taiwanese chipmaker TSMC due to the boom around Artificial Intelligence (AI).
Investors also reached out to Manchester United. The US-listed shares of the British football record champion climbed by 5.5 percent. The traditional club had indeed increased its loss for the third quarter by more than tenfold, to 71.4 million pounds (84.52 million Euros). However, investors focused on the optimistic forecast of the club, which expected a revenue of 660 million pounds for the current year, up from 635 to 665 million pounds previously. The background was a planned job cut and ticket price increases.
"Further stock market developments of today can be read here.**"
[Tim Fidler, Portfolio Manager at Ariel, commented: "The club is going through a transition that could benefit it in the coming years." ]
The uncertainty about interest rate hikes in September after Fed Chair Powell's testimony has led some investors to engage in stock trading, with hopes of lower rates boosting stock prices. In the context of this market scenario, Wall Street traders are closely monitoring the Dow Jones, which represents major US companies, for any signs of movement.
Given the potential for a rate cut and the optimistic outlook on the US economy, investors are actively considering stock trading opportunities, with the performance of tech companies like Nvidia and Micron being particularly noteworthy.
