Global stocks rise as Fed chair Jerome Powell confirms interest rates will remain low for longer
- Global stocks gained on Thursday after Jerome Powell struck a reassuring tone for central bank policy.
- The Fed chairman said it could take more than three years before inflation reached its target of 2%.
- Yield on the 10-year US Treasury note rose to 1.4%, its highest in a year.
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Global stocks rose on Thursday after Federal Reserve chairman Jerome Powell wrapped up his two-day congressional testimony by assuring that US interest rates will remain low for longer, soothing some concern that an acceleration in inflation could prompt a shift in monetary policy.
Powell's remarks led to a sharp turnaround across a number of different asset classes, Deutsche Bank's Jim Reid said. The S&P 500 moved on Wednesday from an intraday low of -0.56% shortly after the open to end the session 1.14% higher in the its strongest daily performance in over 3 weeks.
The Dow Jones, S&P 500, and Nasdaq rose 0.2%. Yields on the 10-year US Treasury note rose 3 basis points to just over 1.4% on Thursday - its highest level in a year.
Powell has "again been pouring oil on troubled markets and making some very sensible distinctions between price level rises and inflation," said ING's Robert Carnell.
In his remarks to the House Financial Services Committee, Powell said it could take more than three years before inflation reached the Fed's target of 2%. That helped to reiterate the message that the central bank is in no rush to pare back on stimulus any time soon, Deutsche's Reid said, and he reaffirmed his message that the labour market was very far from the Fed's goal, saying that there was still "a long way to go" before the US got to maximum employment.
That was enough for the "perpetual circling dip-buyers in multiple asset classes to re-emerge from hiding," said Jeffrey Halley, a senior market analyst at OANDA.
"With the Fed confirming that it will look beyond any short-term spike in inflation, we see real rates on cash deposits remaining negative," said Mark Haefele, chief investment officer at UBS Global Wealth Management. "Against this backdrop, investors should continue to search for positive real yields."
Another positive for markets was that the US FDA released data showing Johnson & Johnson's single-dose coronavirus vaccine is safe and effective. It's expected to become the third vaccine to reach the American public, after Moderna and Pfizer's products, as its efficacy paves the way for emergency authorization.
In the UK, a think tank is urging Chancellor of the Exchequer Rishi Sunak to deliver a £100 billion ($140 billion) fiscal boost to help the economy recover from the damage caused by the pandemic. The Times reported Sunak is preparing for the holiday on stamp duty, or the home purchase tax, to be extended until the end of June.
The UK's FTSE 100 rose 0.5%, the Euro Stoxx 50 rose 0.4%, and Germany's DAX rose 0.5%.
In Asia, the Hong Kong government announced stamp duty would rise on stock transactions for the first time in three decades. China's Shanghai Composite rose 0.6%, Japan's Nikkei rose 1.6%, and Hong Kong's Hang Seng rose 1%.
Data released by the Energy Information Administration showed US oil production suffered a 10% drop due to the Texas power cuts. Combined with an uber-dovish Powell and an already tight physical market, oil prices extended this month's rally. Brent Crude rose 0.8% to $66.72, and West Texas Intermediate 0.7%, to $63.72.
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