Stocks rise following dovish comments from Fed Chairperson
U.S. stocks closed higher on Wednesday, 28 November 2018 with the Dow Jones Industrial Average surging more than 600 points, as investors interpreted Federal Reserve Chairman Jerome Powell's comments on interest rates as dovish. Worries about tighter liquidity, as the Fed maintained a hawkish stance in its bid to normalize the monetary policy, had cast a shadow on the market.
The Dow rallied 617.70 points, or 2.5%, to 25,366.43, while the S&P 500 index advanced 61.65 points, or 2.3%, to 2,743.82. The Nasdaq Composite Index rose 208.89 points, or 3%, to 7,291.59.
On Wednesday Federal Reserve Chair Jerome Powell said he sees current interest rates "just below" neutral. That proved to be a rally point because the language Mr. Powell used early last month indicated a view that the fed funds rate was "a long way from neutral." Fed Chair Powell added that there is no preset policy path, and the Fed will be data-dependent in its decision making, which pleased investors. By highlighting risks, though, that included previous rate increases, trade disputes, and Brexit/EU political uncertainty, the market chose to read between the lines that the Fed chair isn't wedded to three rate hikes in 2019.
Mr. Powell's perceived dovish remarks sent bond yields and the dollar lower.
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The ICE U.S. Dollar Index fell by 0.6% to 96.777. A weaker dollar typically raises investment demand for dollar-priced commodities, including gold, and vice versa.
Among economic data expected for the day, new home sales declined 8.9% month-over-month in October to a seasonally adjusted annual rate of 544,000 (consensus 575,000). September was revised up to 597,000 from 553,000. Regardless of the upward revision to September, the key takeaway from the report is that the pace of new home sales is weak across all regions and reflects the affordability constraints fueled by rising mortgage rates. The October sales pace is the slowest since March.
ALso, the second estimate for Q3 real GDP showed output increasing at an annualized rate of 3.5% (consensus 3.6%), unchanged from the advance estimate as downward revisions to personal spending and state and local government spending offset upward revisions to nonresidential fixed investment and private inventory investment. The GDP Price Deflator was also unchanged at 1.7% (consensus 1.4%). The key takeaway from the report is that real final sales, which exclude the change in inventories, were up just 1.2%, which was the weakest growth rate since the fourth quarter of 2016.
The Commerce Department said gross domestic product grew at a 3.5% annualized rate in the third quarter, in a second estimate that matched the first. Market had expected the number to be revised up to 3.6%. Separately, data showed the deficit in advanced goods trade widened to $77.2 billion in October from $76.3 billion the previous month. Economists expected the deficit to rise to $77.7 billion.
Crude oil futures dropped on Wednesday, 28 Noember 2018 at Nymex to settle at their lowest in more than a year, sending U.S. prices sliding toward $50 a barrel on the back of a 10th straight weekly rise in U.S. crude stockpiles. Trading was volatile Wednesday, with prices down ahead of the supply data, then moving higher as remarks from Federal Reserve Chairman Jerome Powell appeared to imply fewer future interest-rate hikes, putting pressure on the U.S. dollar.
West Texas Intermediate crude for January delivery lost $1.27, or 2.5%, to settle at $50.29 a barrel on the New York Mercantile Exchange. January Brent crude, the global benchmark, declined $1.45, or 2.4%, to $58.76 a barrel on ICE Futures Europe.
Bullion pries ended higher at Comex on Wenesday, 28 November 2018. Gold prices shook off earlier weakness to settled higher Wednesday, getting a boost as the U.S. dollar declined after comments from Federal Reserve Chairman Jerome Powell appeared to imply fewer interest-rate increases ahead.
Gold for December delivery rose $10.20, or 0.8%, to settle at $1,223.60 an ounce after earlier tapping a low of $1,210.50. Gold for February delivery which has higher open-interest volume, added $9.90, or 0.8%, to finish at $1,229.80 an ounce. On Wednesday, March silver rose 23.4 cents, or nearly 1.7%, to $14.455 an ounce.
Looking ahead, investors will receive Personal Income and Spending for October, PCE Price Index for October, FOMC Minutes for November, weekly Initial and Continuing Claims, and Pending Home Sales for October.
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