Published: Fri, July 12, 2019
Finance | By Loren Pratt

Futures higher after rally on Powell's dovish remarks

Futures higher after rally on Powell's dovish remarks

U.S. Federal Reserve Chairman Jerome Powell testifies before the House Financial Services Committee on the state of the U.S. economy, on Capitol Hill in Washington D.C., the United States, on July 10, 2019. There was a 1.1% surge in the cost of dental services, but prescription drug prices fell 0.6%.

The consumer price index excluding the volatile food and energy components rose 0.3% last month, the largest increase since January 2018, after four straight monthly gains of 0.1%. The oil and gas sector as well as defensive stocks led the gains.

Fed Chairman Jerome Powell on Wednesday told lawmakers the US central bank would "act as appropriate" to protect the economy from rising risks such as trade tensions and slowing global growth.

"Of course I would not do that", Powell said. The Fed is getting closer to lower rates to take out "insurance" that does not happen. "The way you see equity markets behaving, risk is that what markets are pricing could lead to disappointment".

Futures rise: Dow 0.22%, S&P 0.22%, Nasdaq 0.25%. Japan's Nikkei added 0.5%.

On Thursday morning, most USA stock index futures were high.

Some questioned how much momentum there was behind the latest rally.

Many Fed officials historically would then support raising interest rates to forestall what was called a "wage-price spiral".

Its really about managing expectations because any roadblock against the Fed cutting rates will be disastrous for the edifice that is risk markets, now at record highs. He said the central bank wants "to use our tools to keep it there", and offset weakness stemming from a global slump in manufacturing and business confidence linked to trade tensions.

"Most indicators suggest that inflationary pressures are benign - commodity prices are declining and the strong US dollar is weighing on import prices and domestic goods prices", Levy said.

Policymakers from the USA central bank are scheduled to meet on July 30-31.

That concern among manufacturers, in particular the threat to their global supply chains, prompted the Fed to "indicate at our last meeting we were looking at changing rates".

The rate cut prospects also weighed on the dollar.

The Australian dollar dipped 0.05% to $0.6972 after gaining 0.2% the previous day. It was still some distance from a six-month trough of 106.780 set on June 25. The euro strengthened to $1.1277 from $1.1250. The core index is up 2.1 percent compared to a year ago.

Government debt yields, which move inversely to prices, fell following Powell's testimony.

The contract had surged 4.5% on Wednesday after USA crude inventories shrank and as major producers cut almost a third of offshore Gulf of Mexico production ahead of an expected storm.

The kiwi was trading at 66.67 U.S. cents at 5pm in Wellington from 66.41 cents at 8am.

Brent crude oil, the global standard, added 15 cents to $67.16 per barrel.

The signs of a pick-up in underlying inflation, along with separate data on weekly jobless claims showing the labour market remained solid, curbed financial market expectations of a more aggressive 50 basis point cut at the Fed's July 30-31 meeting.

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