Stocks Roar as Powell Quells Fear of Jumbo Hikes: Markets Wrap

(Bloomberg) -- Stocks rallied the most since May 2020 and Treasury yields fell after Federal Reserve Chair Jerome Powell eased concern the central bank will embark on a more aggressive pace of tightening after delivering its steepest rate increase in two decades.

Traders pared their bets on a bigger June hike after Powell said there was “a broad sense on the committee that additional 50 basis-point increases should be on the table for the next couple of meetings.” He also dashed speculation the Fed was weighing an even larger hike of 75 basis points in the months ahead, saying that it is “not something that the committee is actively considering.” The dollar slipped.

The Federal Open Market Committee voted unanimously to increase the benchmark rate by a half percentage point. It will begin allowing its holdings of Treasuries and mortgage-backed securities to decline in June at an initial combined monthly pace of $47.5 billion, stepping up over three months to $95 billion.

Comments: 

• “This is what it sounds like when doves FLY!” wrote Cliff Hodge, chief investment officer at Cornerstone Wealth. “The key takeaway from the press conference for the markets is that 75 basis points is off the table.”
• “Recent actions by the FOMC confirms the base-case scenario that the markets incorrectly priced in huge aggressive Fed action this year,” said Jeffrey Roach, chief economist at LPL Financial.
• “U.S. stocks surged after Fed Chair Powell signaled he can slow inflation without triggering a recession,” wrote Ed Moya, senior market analyst at Oanda​. “It seems risky assets can rally now that Wall Street has fully priced in the rest of the year’s rate hikes by the Fed.”
• “Signaling a series of 50bp moves might be the compromise against doing 75bps in one meeting,” said Neil Dutta, head of economics at Renaissance Macro Research, who noted that the markets had been priced for “peak hawkishness.”

Before the Fed decision, JPMorgan Chase & Co.’s chief Jamie Dimon said the U.S. central bank should have raised rates sooner as price pressures hit the global economy. Treasury Secretary Janet Yellen sees a possible “soft landing” as the Fed moves to bring down inflation. “I do believe we’re going to see solid growth in the coming year,” she said in an interview at a Wall Street Journal event on Wednesday. 

After the close of regular trading:

• EBay Inc. gave a lackluster sales and profit outlook for the current quarter, accelerating its decline from the peaks reached when shoppers were stuck at home during the pandemic.
• Booking Holdings Inc. reported revenue in the first quarter that was better than analysts’ estimates, benefiting from pent-up demand for leisure travel.

Key events this week: 

• Bank of England rate decision and briefing, Thursday
• OPEC+ convenes virtually for a regular meeting, Thursday
• U.S. April jobs report, Friday

Some of the main moves in markets:

Stocks

• The S&P 500 rose 3% as of 4 p.m. New York time
• The Nasdaq 100 rose 3.4%
• The Dow Jones Industrial Average rose 2.8%
• The MSCI World index rose 2%

Currencies

• The Bloomberg Dollar Spot Index fell 0.9%
• The euro rose 0.9% to $1.0615
• The British pound rose 1% to $1.2626
• The Japanese yen rose 0.8% to 129.14 per dollar

Bonds

• The yield on 10-year Treasuries declined five basis points to 2.92%
• Germany’s 10-year yield was little changed at 0.97%
• Britain’s 10-year yield was little changed at 1.97%

Commodities

• West Texas Intermediate crude rose 5.4% to $107.97 a barrel
• Gold futures rose 0.8% to $1,886.40 an ounce

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