Less aggressive interest rate policy: Powell's speech gives hope to Wall Street

Fed Chair Jerome Powell has caused traders to be euphoric with his announcement that he will slow the pace of interest rate hikes - even though inflation is still far too high and the US economy is weakening.

Less aggressive interest rate policy: Powell's speech gives hope to Wall Street

Fed Chair Jerome Powell has caused traders to be euphoric with his announcement that he will slow the pace of interest rate hikes - even though inflation is still far too high and the US economy is weakening. Suddenly government bonds are in demand again, but also papers from software companies.

US Federal Reserve Chairman Jerome Powell gave Wall Street the decisive impetus late in the session and triggered a rally on the stock markets. Powell said what stock and bond investors wanted to hear - and hinted at a slowing pace of rate hikes. For the next Fed meeting in December, he promised a rate hike of "only" 50 basis points. This should end an unprecedented series of four 75 basis point rate hikes to combat high inflation. "Powell needs to keep arguing hard about this, but he gave Wall Street reason for hope," said TradeStation market strategist David Russell.

The Dow Jones index turned 2.2 percent to 34,590 points, p

Powell and Fed Governor Lisa Cook did not leave any doubt that inflation in the USA was still far too high, despite the slight slowdown in October. But such words were lost in the general euphoria about a slowdown in interest rates, especially since the US economy has recently developed weaker, according to a survey by the Fed. According to the Beige Book economic report, the economy has stagnated or picked up only slightly, slowing down compared to the previous report. These findings bolstered market hopes for a slower pace in the rate hike cycle.

Nevertheless, the mood of purchasing managers from the Chicago area clouded over. The fact that GDP was stronger than in the first reading and that the inflation indicator PCE deflator was also slightly above expectations was largely ignored. Hewlett Packard Enterprise (HPE) increased in price by 8.5 percent. The information technology group met analysts' expectations with its quarterly results and also gave a strong sales outlook.

Workday shares rose 17.2 percent. The provider of cloud-based software for accounting, human resources and business planning has upgraded its outlook for 2023 and announced a share buyback program. Intuit's stock rose 7.3 percent after first-quarter results. The tax calculation software maker beat Wall Street expectations but lowered its revenue guidance.

As a result, analysts lowered their price targets one after the other, but unanimously stuck to their buy recommendations. Doordash gained 9.2 percent, the food delivery service cut 1,250 jobs - 6 percent of the workforce. US Treasury bonds were bought briskly after Powell's speech - the yields (especially for the shorter maturities), which are more sensitive to interest rate policy, plummeted.

The dollar came under considerable pressure with falling market interest rates, and the dollar index lost 0.9 percent. The weak greenback and falling market interest rates supported the price of gold. Oil prices also increased significantly. Crude oil inventories in the US had been reduced far more than the market had anticipated. The weak dollar also helped.

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