Global market wrap: a ‘neutral’ Powell speech, dollar heavy - ANZ

Analysts at ANZ Bank New Zealand Limited ("ANZ") explained that the USD sell-off continued as a ‘neutral’ Powell speech and an announcement from the PBoC that banks would resume a counter-cyclical factor when calculating the daily reference rate sparked further selling of long dollar positions.

Key Quotes:

"Equity markets remained well supported based on the strong growth/gradual rate rise outlook. The S&P 500 rose 0.6%, the DAX rose 0.2% and FTSE was up 0.2%. Fixed income was a touch firmer, supported by Powell’s remarks that there are no real clear signs of inflation accelerating through 2.0%. The yield on the US 10-year note was little changed at 2.81%. Oil continued to rally, rising 1.3% to USD68.72. Gold was also 1.7% firmer at USD1206.8/oz."

Powell’s Jackson Hole speech: gradual rate hikes remain appropriate

"Powell’s Jackson Hole speech essentially confirmed the need for further gradual rate hikes and stressed that higher interest rates have served the economy well. However, rate rises remain data dependent, and other Fed officials reiterated that “nothing is predetermined”. The Fed Chair’s reiteration that rate rises would remain gradual gave the green light to ongoing falls in the USD and increases in equities on Friday. The news was all good: “With solid household and business confidence, healthy levels of job creation, rising incomes, and fiscal stimulus arriving, there is good reason to expect that this strong performance will continue… While inflation has recently moved up near 2 percent, we have seen no clear sign of acceleration above 2 percent, and there does not seem to be an elevated risk of overheating. This is good news, and we believe that this good news results in part from the ongoing normalization process… if the strong growth in income and jobs continues, further gradual increases in the target range for the federal funds rate will likely be appropriate.” A Goldilocks economy indeed. 

Reflecting the strength of activity and profitability the S&P 500 equity index is bursting out in all dimensions: both fresh highs and a new record for the length of a bull run (~3455 days, depending on your exact definition). We are not in the business of predicting equities. But it is worth bearing in mind that equities peak not when growth peaks, but when investors in aggregate are feeling most bulletproof (and, equivalently, bottom out when no one can see any light at the end of the tunnel). The market seems to be sharing Powell’s growth optimism, at least for now."