Stocks rally, USD turns lower on Powell’s speech

8:06 AM 29 November 2018

Summary:

  • Jerome Powell suggests implicitly the Fed could be close to the neutral rate

  • Bank of England presents a gloomy outlook if no deal on Brexit is reached

  • Australia’s CAPEX for Q3 looks ambiguously

‘Just below’ moves markets

Start investing today or test a free demo

Open real account TRY DEMO Download mobile app Download mobile app

Federal Reserve Chairman Jerome Powell provided fresh fuel for the stock market and pushed the US dollar much lower when he gave a speech at the Economic Club of New York on Wednesday. The key line being widely cited is that Powell sees the current level of interest rates ‘just below’ the neutral range sending a message to markets that the US central bank is slowly coming to an end of monetary tightening in this business cycle. It was not the first time Powell did so as his similar remarks were expressed in earlier weeks. On the other hand, it looks that the Fed is not going to keep on tightening monetary conditions once the financial market stumbles, this could be a contrary word to this voiced by Powell some time ago when he said the major focus is on the real economy. In addition, Fed’s Chairman said that an impact of hikes is uncertain and it might take a year or even more to see it. In terms of the macroeconomic outlook Powell was an optimist saying that he expects solid growth, low unemployment and inflation near the target. When it comes to the stock market Powell said that there is no dangerous excess there. Speaking of estimates of the neutral rate, the concept when rates are at the level that neither accelerates or decelerates inflation, he suggested that these forecasts are highly uncertain. He concluded the speech adding that monetary policy is not an ideal tool to address financial imbalances, though he does not see them on the horizon for the time being.

What is the prime conclusion we may draw? So, it appears the Federal Reserve has decided to strike a more cautious tone before entering the next year. While a next month rate increase seems to be a done deal, markets might become less certain their bets from the beginning of the following year. We view Powell’s comments as a preliminary signal the Fed wants to change financial markets’ perception with regard to the pace of rate rises. This shift may have been made a little while ago given the fact that in October 3 Powell said that “we’re a long way from neutral at this point, probably.” By and large, a bunch of remarks offered by Powell yesterday is consistent with our view regarding the greenback and we expect the US currency to weaken in the mid-term. In terms of a markets’ response to Powell’s appearance Wall Street surged with the NASDAQ (US100) rising virtually 3%, the SP500 (US500) gained 2.3% while the Dow Jones (US30) rose 2.5%. The US10Y yield turned lower in the aftermath losing several basis points and it is trading below 3.02% this morning. A downward move in rates saw the US dollar plunging with the EURUSD being already closed to 1.14, up from 1.1280 before the Powell’s speech.

The SP500 jumped on Wednesday and it neared its resistance in form of the 50DMA. Source: xStation5

Bank of England frightens ‘hard Brexit’ supporters

At the same time when Powell began his speech, the Bank of England released its report concerning a various Brexit scenarios’ impact on the economy. Under the worst assumption the UK economy if forecast to see a 8% GDP decline, a 30% house prices fall, a 48% plunge of commercial property prices, a 25% decrease in the GBP value against the dollar, the unemployment rate jumping to 7.5%, inflation accelerating to 6.5% and the interest rate rising to as high as 5.5% in response to a spike in price growth. These forecasts seem to look a bit ridiculously even when we take into account the worst possible deal for the United Kingdom. However, the aim for this report was clear: frighten policymakers and thereby convince them to vote for the current Brexit deal (December 11). Nevertheless, the ultimate effect could be radically different. For example, Andrew Sentance, the former BoE policymaker, tweeted that the analysis outlined by the BoE is highly speculative and extreme and will add to the view that the Bank is getting unnecessarily involved in politics. The pound fell immediately after the report was released but it was due to Powell.

The BoE forecasts the dismal outlook for the UK economy if no deal is reached. Source: Bloomberg

Australian CAPEX mixed

At the end of the morning analysis let’s touch briefly on the Australian dollar which is trading 0.2% this morning. Namely, we were offered the CAPEX data for the third quarter showing a 0.5% QoQ decrease in private investment spending compared to the consensus of a 1% increase. On the flip side, the 4th estimate of CAPEX spending plans for 2018/2019 turned out to be much more positive producing a value of 114.1 billion AUD compared to 102 billion AUD seen in the 3rd reading. It was also an improvement when we compare to the same period last year. However, it needs to be said that this is another weak data for the third quarter (yesterday we got the data regarding construction work done) boding not well for GDP growth.

Yesterday we wrote about a possibility to see the pair higher. Indeed, this scenario already materialized but bulls might want to continue heading north toward 0.7360 or the upper end of the channel. Source: xStation5

In the other news:

  • Japanese retail sales in October rose 3.5% YoY beating the consensus of 2.7%

  • UK consumer confidence, the index compiled by YouGov, slumped to the lowest in a year

  • Russian President Putin said that oil prices around $60 are absolutely fine

Share:
Back
Xtb logo

Join over 1 000 000 XTB Group Clients from around the world

The financial instruments we offer, especially CFDs, can be highly risky. Fractional Shares (FS) is an acquired from XTB fiduciary right to fractional parts of stocks and ETFs. FS are not a separate financial instrument. The limited corporate rights are associated with FS.
This page was not created for investors residing in Brazil. This brokerage is not authorized by the Comissão de Valores Mobiliários (CVM) or the Brazilian Central Bank (BCB). The content of this page should not be characterized as an investment offer in Brazil or for investors residing in that country.
Losses can exceed deposits

We use cookies

By clicking “Accept All”, you agree to the storing of cookies on your device to enhance site navigation, analyze site usage, and assist in our marketing efforts.

This group contains cookies that are necessary for our websites to work. They take part in functionalities like language preferences, traffic distribution or keeping user session. They cannot be disabled.

Cookie name
Description
SERVERID
userBranchSymbol cc 10 October 2024
test_cookie cc 25 January 2024
adobe_unique_id cc 9 October 2025
__hssc cc 9 October 2024
SESSID cc 2 March 2024
__cf_bm cc 9 October 2024
intercom-id-iojaybix cc 6 July 2025
intercom-session-iojaybix cc 16 October 2024
xtbCookiesSettings cc 9 October 2025
TS5b68a4e1027
countryIsoCode
xtbLanguageSettings cc 9 October 2025
userPreviousBranchSymbol cc 9 October 2025
TS5b68a4e1027
intercom-device-id-iojaybix cc 6 July 2025
__cf_bm cc 9 October 2024
__cfruid
__cfruid
__cf_bm cc 9 October 2024
__cf_bm cc 9 October 2024
_cfuvid
adobe_unique_id cc 9 October 2025
_cfuvid
TS5b68a4e1027
xtbCookiesSettings cc 9 October 2025
SERVERID
TS5b68a4e1027
__hssc cc 9 October 2024
test_cookie cc 1 March 2024
__cf_bm cc 9 October 2024
_cfuvid
_cfuvid
__cf_bm cc 9 October 2024
__cf_bm cc 9 October 2024

We use tools that let us analyze the usage of our page. Such data lets us improve the user experience of our web service.

Cookie name
Description
_gid cc 9 September 2022
_gat_UA-98728395-1 cc 8 September 2022
_gat_UA-121192761-1 cc 8 September 2022
_gcl_au cc 7 January 2025
_ga_CBPL72L2EC cc 9 October 2026
_ga cc 9 October 2026
__hstc cc 7 April 2025
__hssrc
_vwo_uuid_v2 cc 10 October 2025
_ga_TC79BEJ20L cc 9 October 2026
_vwo_uuid cc 9 October 2025
_vwo_ds cc 8 November 2024
_vwo_sn cc 9 October 2024
_vis_opt_s cc 17 January 2025
_vis_opt_test_cookie
af_id cc 23 February 2025
afUserId cc 25 January 2026
af_id cc 24 January 2026
AF_SYNC cc 1 February 2024
_ga cc 9 October 2026
_gid cc 10 October 2024
_ga_CBPL72L2EC cc 9 October 2026
__hstc cc 7 April 2025
__hssrc
_ga_TC79BEJ20L cc 9 October 2026
_gcl_au cc 7 January 2025
AnalyticsSyncHistory cc 31 March 2024

This group of cookies is used to show you ads of topics that you are interested in. It also lets us monitor our marketing activities, it helps to measure the performance of our ads.

Cookie name
Description
MUID cc 3 November 2025
_omappvp cc 21 September 2035
_omappvs cc 9 October 2024
_uetsid cc 10 October 2024
_uetvid cc 3 November 2025
_fbp cc 7 January 2025
fr cc 7 December 2022
_ttp cc 3 November 2025
_tt_enable_cookie cc 3 November 2025
_ttp cc 3 November 2025
hubspotutk cc 7 April 2025
IDE cc 3 November 2025
YSC
VISITOR_INFO1_LIVE cc 7 April 2025
hubspotutk cc 7 April 2025
_omappvp cc 11 February 2035
_omappvs cc 1 March 2024
_uetsid cc 10 October 2024
_uetvid cc 3 November 2025
_ttp cc 3 November 2025
MUID cc 3 November 2025
_fbp cc 7 January 2025
_tt_enable_cookie cc 3 November 2025
_ttp cc 3 November 2025
li_sugr cc 30 May 2024
guest_id_marketing cc 9 October 2026
guest_id_ads cc 9 October 2026
guest_id cc 9 October 2026
muc_ads cc 9 October 2026
VISITOR_PRIVACY_METADATA cc 7 April 2025
MSPTC cc 3 November 2025
IDE cc 3 November 2025

Cookies from this group store your preferences you gave while using the site, so that they will already be here when you visit the page after some time.

Cookie name
Description
bcookie cc 9 October 2025
lidc cc 10 October 2024
UserMatchHistory cc 31 March 2024
bscookie cc 1 March 2025
li_gc cc 7 April 2025
bcookie cc 9 October 2025
li_gc cc 7 April 2025
lidc cc 10 October 2024
personalization_id cc 9 October 2026

This page uses cookies. Cookies are files stored in your browser and are used by most websites to help personalise your web experience. For more information see our Privacy Policy You can manage cookies by clicking "Settings". If you agree to our use of cookies, click "Accept all".

Change region and language
Country of residence
Language