By Swissquote Analysts
Jerome Powell Signals Fed Prepared to Slow Rate-Rise Pace in December
Topic of the day
Federal Reserve Chair Jerome Powell indicated the central bank is on track to raise interest rates by a half percentage point at its next meeting, stepping down from an unprecedented series of four 0.75-point rate rises aimed at combating high inflation. Mr. Powell, in a speech Wednesday, said an overheated labor market needed to cool more for the Fed to be confident that inflation would make durable downward progress toward its 2% goal. Because the Fed has raised rates rapidly and it takes time for those moves to influence the economy, it would make sense for officials to slow rate increases, he said in remarks prepared for delivery at the Brookings Institution. "The time for moderating the pace of rate increases may come as soon as the December meeting," he said. Mr. Powell reviewed signs of progress on the inflation fight, including a slowdown in interest-rate sensitive sectors of the economy such as housing and improving supply-chain conditions. But he said that declines in goods prices and rents, which have contributed notably to inflation over the last 18 months, might be insufficient if firms don't slow their hiring. The upshot is that Fed policy will seek to slow inflation and wage growth by reducing demand for workers, a subject that Mr. Powell addressed delicately on Wednesday. "For the near term, a moderation of labor demand growth will be required to restore balance to the labor market," he said. While strong wage growth "is a good thing," he implied it is too high right now to support a return to the 2% inflation rate the Fed targets. "For wage growth to be sustainable, it needs to be consistent with 2% inflation," he said.
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The Swiss stock market closed on a friendly note on Wednesday in line with the European stock exchanges. The SMI gained 0.5 per cent to 11,128 points. Among the 20 SMI stocks, there were twelve price gainers and eight price losers. 116.38 (previously: 83.73) million shares were traded. The index was supported by significant gains in Richemont (+3.4%), which benefited from the relative calm in China after the mass protests against the government there. Outside the SMI, Swatch gained 1.8 per cent. For both companies, China represents an enormously important sales market. The heavily weighted Nestle (+1.0%) also supported the SMI. The world's first drug to treat peanut allergy has so far proved to be a flop. Financial stocks Credit Suisse (-2.3%) and UBS (-0.7%) were among the losers. Credit Suisse had marked an all-time low only the day before and now slipped to another. Traders spoke of increased short positions and thus bets on falling share prices. ABB slipped 0.2 per cent after being downgraded to "underperform" by BNP Paribas.
European stocks closed higher on Wednesday, buoyed by data showing eurozone inflation slowing more than expected in the month of November. Ahead of the ECB's interest-rate decision next month, ECB President Christine Lagarde said earlier this week that inflation in Europe hasn't reached its peak yet and it risks turning out even higher than currently expected. The pan European Stoxx 600 climbed 0.63%. The U.K.'s FTSE 100 surged 0.81%, Germany's DAX gained 0.29% and France's CAC 40 advanced 1.04%, while Switzerland's SMI ended 0.45% up. In the UK market, Anglo American Plc, Antofagasta, Endeavour Mining, Intertek Group, Glencore, Compass Group, Flutter Entertainment, Halma and Rolls-Royce Holdings gained 2 to 3.6%. Shell, Next, Dechra Pharmaceuticals, Harbour Energy, Fresnillo, Prudential, BAE Systems and Standard Chartered also ended notably higher. British Land, Unite Group, Tesco, Segro, DCC, Schrodders, Smurfit Kappa Group and BT Group lost 1 to 2.6%. In Paris, Hermes International gained about 5%. LVMH, Renault, Kering, L'Oreal, TotalEnergies, Michelin, Alstom, Dassault Systemes, Essilor and Veolia gained 1 to 4%. Unibail Rodamco drifted down more than 2.5%. Sanofi, Publicis Groupe and AXA also ended notably lower. In the German market, HelloFresh rallied nearly 3.5%. Daimler and Infineon Technologies also gained more than 3%.
Stocks rallied Wednesday after Federal Reserve Chair Jerome Powell signaled a potential slowdown in interest-rate increases, powering the Dow Jones Industrial Average more than 700 points higher and into a new bull market. The S&P 500 and Nasdaq Composite jumped 3.1% and 4.4%, respectively, and all three indexes ended November with a second consecutive month of gains. Still, the rally wasn’t enough to undo the damage inflicted earlier in the year as rapidly rising interest rates battered stocks. The S&P 500 is down 14% in 2022 and remains on track for its worst year since 2008. The tech-heavy Nasdaq Composite, whose members tend to be especially sensitive to changing rates, has slumped 27%. However, optimism was bolstered Wednesday when Mr. Powell indicated in a speech that the central bank is on track to raise rates by a half percentage point at its December meeting. That would mark a downshift after a series of four 0.75-point rate rises. Stocks rallied as Mr. Powell spoke and built on their gains through the afternoon. The S&P 500 rose 122.48 points, or 3.1%, to 4080.11. The Dow Jones Industrial Average added 737.24 points, or 2.2%, to 34589.77. The Nasdaq Composite advanced 484.22 points, or 4.4%, to 11468.00. State Street (+7.8%) announced that it would not acquire the investor services business of Brown Brothers Harriman due to regulatory issues and operational risks associated with the deal. Pharmaceutical company Horizon Therapeutics (+27%) confirmed that it was attracting interest from potential buyers. Horizon announced that it was in "very preliminary" talks with Amgen (+1.6%), Johnson & Johnson subsidiary Janssen Global Services (+1.1%), and Sanofi (-1.9% in Paris). IT group Hewlett Packard Enterprise (+8.5%) reported better-than-expected revenues in the fourth quarter of its financial year, while its profit was in line with consensus. Cloud software specialist Netapp (-5.8%) cut its guidance for the year due to macroeconomic uncertainties and a strong dollar, while US food delivery company DoorDash (+9.2%) announced on Wednesday that it plans to lay off 1,250 staff to cut costs. The restructuring plan of Walt Disney's (+3.4%) chief executive Bob Iger could result in impairment charges, the entertainment group revealed on Tuesday evening in a filing with the Securities and Exchange Commission.
In Asia, major indexes broadly closed with gains on Thursday. South Korea’s Kospi rose 0.2%, Hong Kong’s Hang Seng added 1.6% and Japan’s Nikkei 225 gained 1.1%. China’s Shanghai Composite edged 0.7% higher. In Hong Kong, Tencent Holdings increased by 3.7 per cent and in Tokyo, Sony added 1.0 per cent.
Long-dated U.S. government debt yields slipped on Wednesday after Federal Reserve Chairman Jerome Chairman said the pace of interest-rate hikes can slow as soon as policy makers’ next meeting in two weeks. The 10-year Treasury note gave up 6 basis points to 3.649% following the Fed Chairman's statements. The 2-year Treasury note finished virtually stable at 4.471%.
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