Fundamental Outlook – Rude
- US stocks fall After Federal Reserve Chairman Jerome Powell is confident of raising interest rates.
- The weaker-than-expected PCE inflation index in July failed to deter rhetoric.
- Asian and European stock indexes are likely to ease pressure, Powell comments.
US stock market fall on friday After Federal Reserve Chairman Jerome Powell gave a speech at the Jackson Hole Economic Symposium, Fed chiefs weren’t surprised markets. Even if you don’t know from the market reaction, the benchmark S&P 500, Nasdaq-100 and Dow Jones Industrial Average traded down 3.37%, 4.10% and 3.03% respectively.
Powell’s comments were preceded by an update to the personal consumption expenditure (PCE) price index in July. That crossed the line at a 6.3% annualized rate. The Fed’s favored core value cuts on food and energy costs rose 4.6% annually, well below Bloomberg’s consensus 4.7% annually. It is good news for the economy and has been well received by monetary policymakers.
However, that hasn’t stopped Mr Powell from keeping up with poor policy expectations. The head of the central bank will damage the economy, leaving the guard at the first signs of a price cold. The market still penalizes the share price, however. The multi-week rally that began in June might cause stock prices to be too high. Powell said on Friday that “Historical records actively warn once morest premature loosening of policy.”
Too much reaction? or market pricing is appropriate for the risk of interest rates not only rising but for how long they stay. Overnight index swaps and Fed fund futures both reflect higher and longer interest rates. This effectively overturns the core thesis that has driven the stock’s strength over the past several months.
The Asia-Pacific market, though, has to deal with regional-specific factors mainly from China. But it will be the first signal if the risk-free period on Friday’s Wall Street flows into broad market sentiment. Probably. Europe will follow up with its own set of problems. A stronger US dollar sparked a trend in the European and Asia-Pacific markets. The DXY dollar rose nearly 0.5% on Friday following Powell’s remarks.
— Written by Thomas Westwater, analyst at DailyFX.com.
To contact Thomas, use the comments section below or @FxWestwater on twitter
