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Powell reaffirms Fed’s slow path to easing

Federal Reserve Chair Jerome Powell said in speech at Stanford University on Wednesday that recent inflation readings and labour market data did not reassure Federal Reserve (Fed) officials that the central bank will reach its 2% target soon. He suggested more data is needed before proceeding with rate cuts, which is likely to cause choppy trading for markets as data continues to trickle in. Stock markets, which had already been correcting in the days ahead of Powell’s remarks, struggled to find a clear direction on Wednesday after Powell’s comments. Gold strengthened again after the speech, reaching new all-time highs above USD 2300 per ounce.

Shane Strowmatt, LGT
Temps de lecture
5 minutes
Fed building closeup
© Shutterstock

US companies increased hiring in March by 184,000 payrolls, according to the ADP National Employment Report released Wednesday. That was well ahead of market expectations and follows 155,000 new positions in February. The combination of strong labour market data and last week’s high inflation reading continue pushing back market expectations for the Fed’s first rate cut. The prospects of higher rates for longer put pressure on US government debt with yields on ten-year Treasuries rising to their highest level of 2024.

Later in Wednesday’s session, the ISM Service Purchasing Managers’ Index (PMI) fell for a second month in a row to 51.4 points in March. That number is down 1.2 points from the previous month and just above the 50 level, which separate contraction from expansion. The index of prices paid for services and materials also fell to its lowest level in four years at 53.4. The lower price index helped to cool traders’ concerns about a prolonged cycle of higher rates and yields retracted somewhat. In New York, stock indices traded mixed with no clear direction during the day. The Dow Jones Industrial lost 0.1%, while the S&P 500 gained 0.1%. The Nasdaq-100 closed 0.2% higher.

In the Asia-Pacific region, equity markets were more optimistic on Thursday. In Tokyo, the Nikkei 225 gained almost 1% and in South Korea, the Kospi gained more than 1%. In Australia, the S&P/ASX 200 gained 0.5%. Markets on the Chinese mainland, Hong Kong and Taiwan were closed on Thursday due to a public holiday.

Prices increases in the euro area continued to slow in March, according to data released on Wednesday by the European Union’s statistics office, Eurostat. The flash estimate for euro-area inflation in March was 2.4% on an annual basis, down from 2.6% in February. Inflation excluding energy, food, alcohol and tobacco came in at 2.9% in March. Energy prices were putting the brakes on inflation in the economic bloc, having fallen 1.8% since the same month last year. That figure should be a relief for the European Central Bank (ECB) which has been trying to get inflation back down to its target of 2%. Less helpful for ECB was the euro-area unemployment rate, which was stuck at 6.5% on a seasonally adjusted basis in February, the same as during the previous month and only 0.1% lower than in February 2023. The Euro Stoxx 50 finished Wednesday’s session up 0.3%.

Corporate news in focus: There is no major corporate news scheduled today.

Economic data in focus: Composite and Services Purchasing Managers’ Indices from several countries throughout the day, including Spain, Italy, France, Germany, euro area, UK; Swiss Consumer Price Index; euro area Producer Price Index; US weekly initial jobless claims.

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Editor: Alessandro Fezzi
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