US stocks rose with Treasuries and gold after Jerome Powell signalled an openness to rate cuts amid ongoing uncertainty in the economy, cementing market bets for easing at July’s Federal Reserve meeting.
The S&P 500 headed back toward all-time highs after the Fed chairman said in prepared remarks that downside risks to the economy remain, even after Friday’s strong jobs report forced investors to recalibrate rate-cut expectations. The yield on 10-year Treasuries fell to 2.04 per cent after climbing above 2.10 per cent for the first time in a month. The dollar weakened. Oil rose above $59 (Dh216.6) a barrel in New York.
“Powell’s prepared testimony struck a decidedly dovish cord,” Ian Lyngen, head of US rates strategy at BMO Capital Markets, wrote in a note. “By way of an update, the chair just confirmed that things have gotten worse. Friday’s employment report was not as influential for the Fed’s core set of worries as the market believed it might be. “
The remarks came ahead of two days of testimony in Congress on the economic and policy outlook, starting at 10am in Washington. With both equities and bonds sitting on outsize gains since the start of the year, it’s unclear what further impetus they can get given that traders are already discounting a cycle of interest-rate cuts. Investors will also scour June minutes from the Fed’s June meeting.
In Europe, strong manufacturing data from France and low demand at an auction of German bunds weighed government debt. Equities rebounded after a three-day slide. The pound halted a drop to a two-year low as data showed the UK economy rebounded in May. The trading session in Asia was mixed, with modest gains in Hong Kong and South Korea and slides in Japan and China.
Meanwhile, US Trade Representative Robert Lighthizer and Treasury Secretary Steven Mnuchin spoke on the phone with their Chinese counterparts, marking the first high-level contact after their presidents agreed to resume trade talks last month.