Stocks rallied and Treasury yields fell with the dollar as Jerome Powell said the Federal Reserve will slow the pace of rate increases at one point, while adding that officials would refrain from offering “clear guidance” on the magnitude of their next move.

About 85 per cent of the S&P 500 companies rose, while the Nasdaq 100 soared over 4 per cent, the most since November 2020. Two-year US yields tumbled as much as 10 basis points. Expectations for the pace of Fed hikes eased -- with swap markets showing 58 basis points of tightening priced in for September. 

The Fed’s boss rejected speculation the economy is in recession and said the central bank is moving “expeditiously” when it comes to dealing with price pressures. Powell also noted that another unusually large boost in rates would depend on data after officials hiked by 75 basis points Wednesday, taking the cumulative June-July increase to 150 basis points, the steepest since the early 1980s.

Comments:

• “Powell is trying to toe the line between offering useful guidance and avoiding pre-committing to any specific policy path,” said Matt Weller, global head of research at Forex.com and City Index. “He explicitly stated that the committee will go meeting-by-meeting and give less clear guidance now that interest rates are in the range of neutral.”
• “It makes complete sense,” said JPMorgan’s Jay Barry, referring to the Fed offering less clear guidance. “The Fed wanted to move expeditiously to neutral, and with the last three large-sized hikes, we are nominally now in-line with the Fed’s longer-run dot, as a representation of neutral policy expectations.”
• “The July FOMC decision signaled the Fed is nowhere close to pausing rate hikes,” said Anna Wong, chief U.S. economist for Bloomberg Economics. “Market expectations of a Fed put are premature. Looser financial conditions could end up making the Fed’s task of reining in inflation more challenging.”
• “It seems traders aren’t thinking another large move will be justified in September,” said Ed Moya, senior market analyst at Oanda. “The FOMC decision provided optimism that the end of tightening is in sight and that triggered a nice rally for risky assets.”

Fresh economic data reduced the odds the US will report two straight quarters of a contracting economy and avert what is commonly regarded as a recession. Economists at Morgan Stanley, JPMorgan Chase & Co. and Goldman Sachs Group Inc. boosted their estimates for second-quarter gross domestic product after government reports showed firmer durable-goods shipments, a narrower trade deficit and gains in inventories last month.

Here are some key events to watch this week:

• Apple, Amazon earnings, Thursday
• US GDP, Thursday
• Euro-area CPI, Friday
• US PCE deflator, personal income, University of Michigan consumer sentiment, Friday

Some of the main moves in markets:

Stocks

• The S&P 500 rose 2.6 per cent as of 4 p.m. New York time
• The Nasdaq 100 rose 4.3 per cent
• The Dow Jones Industrial Average rose 1.4 per cent
• The MSCI World index rose 1.9 per cent

Currencies

• The Bloomberg Dollar Spot Index fell 0.6 per cent
• The euro rose 0.9 per cent to US$1.0206
• The British pound rose 1.1 per cent to US$1.2165
• The Japanese yen rose 0.3 per cent to 136.52 per dollar

Bonds

• The yield on 10-year Treasuries declined two basis points to 2.79 per cent
• Germany’s 10-year yield advanced two basis points to 0.95 per cent
• Britain’s 10-year yield advanced four basis points to 1.96 per cent

Commodities

• West Texas Intermediate crude rose 3.3 per cent to US$98.16 a barrel
• Gold futures rose 0.9 per cent to US$1,751.10 an ounce