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US stocks and government bonds rallied in response to Federal Reserve chief Jay Powell cementing expectations that the central bank will begin a slow removal of its crisis-era stimulus measures later this year.
The blue-chip S&P 500 index was up 0.9 per cent in afternoon trading following Powell’s speech at a virtual Jackson Hole summit of central bankers on Friday, exceeding the high it set earlier this week. The Nasdaq Composite rose 1.2 per cent, while big regionwide and national European bourses all closed up higher.
Powell said the Fed had met the first of two goals it wanted to achieve, namely for average 2 per cent inflation, before reducing its economic support. The second goal is for maximum employment, with him saying there was “clear progress”.
However, Powell also warned against acting too hastily in response to elevated inflation, noting that such a move could be “particularly harmful” given the world’s largest economy was still fighting the effects of the pandemic.
US government debt gained modestly in price on Friday. The yield on the benchmark 10-year Treasury note edged down about 0.04 percentage points to 1.31 per cent. It has climbed, however, from 1.18 per cent at the start of August, as prices have fallen over the past three weeks.
The dollar weakened on Friday afternoon, falling 0.44 per cent, heading towards a weekly drop of 0.9 per cent.
Powell’s address had been at the centre of market attention, said Roger Lee, head of UK equity strategy at wealth manager Investec. “There is a reason we’re hanging on this — the market is desperate to get some direction, some confirmation from the Fed when tapering starts.”
Europe’s Stoxx 600 closed up 0.4 per cent, with the continent-wide benchmark on track for its seventh consecutive month in the black. Frankfurt’s Xetra Dax was up 0.4 per cent, London’s FTSE 100 gained 0.3 per cent and the CAC 40 in Paris rose 0.2 per cent.
In Asia, Hong Kong’s Hang Seng index closed flat while its tech subsector edged down 0.2 per cent. Commodities rallied, with global benchmark Brent crude up 2 per cent to $72.49 a barrel while US marker West Texas Intermediate rose 1.9 per cent to $68.71 a barrel. Gold was trading up about 1.4 per cent at $1,820 per troy ounce.