New York, Tokyo Jerome Powell has once again brought some relief to the stock markets. At a congressional hearing on Wednesday, the head of the US Federal Reserve (Fed) signaled a more cautious course with regard to the forthcoming rate hikes. As planned, he wants to stick to a rate hike of a quarter of a percentage point when the central bankers meet in two weeks.
But he also announced that the Fed intends to act very cautiously because of the war in Ukraine and the unpredictable consequences for the global economy. “We need to respond quickly to incoming data and the evolving outlook,” Powell said. Investors took this as a positive sign after Tuesday’s losses.
The three major indices made gains: The US standard index Dow Jones closed 1.8 percent higher on Wednesday at 33,891 points. The tech-heavy Nasdaq advanced 1.6 percent to 13,752 points. The broader S&P 500 gained 1.9 percent to 4386 points. Ten of the 11 sectors in the S&P 500 were up at least 1 percent on Wednesday.
Five of them even managed an increase of more than two percent each. Tom Lee from the analysis house Fundstrat assumes that the volatility of the past few days could continue for a while. His price target for the S&P 500 is 5100 points at the end of the year – that would be an increase of 16 percent compared to the closing price on Wednesday.
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Lee is known for his optimistic forecasts, but he has often been correct recently. The Fed’s more cautious stance “reduces the likelihood that the central bank will slam on the brakes too quickly, thereby causing a recession,” he told CNBC. He has high hopes that the markets will recover significantly in the second half of the year.
Asian investors continue the recovery
Asian markets continued the positive trend from Wall Street on Thursday. Not only Japan and Korea’s stock exchanges increased in the morning, but also the trading centers in Shanghai, Hong Kong and Singapore. But the momentum was weaker than in the US.
The Japanese business newspaper Nikkei blames two opposing trends for the lack of momentum. On the one hand, investors were reassured by the appearance of Powell, the head of the US Federal Reserve, before the US Congress. On the other hand, investors are worried about the rapid rise in commodity prices and the growing uncertainty caused by the war in Ukraine.
>> Read here: Russian oil finds no buyers – Western sanctions are having an effect
Japan’s leading index, the Nikkei 225, reflected the impact of these conflicting trends throughout the morning. The Nikkei started more than one percent higher than the previous day’s closing price before falling and rising again just before noon. At the lunch break, the Japanese price barometer was still 0.8 percent up at 26,608 points.
Even the share price of the carmaker Toyota rose. The group had announced that it would stop its plant in Russia and car exports to Russia from March 4th. The world’s largest fashion group, Fast Retailing, known for its Uniqlo brand, fell by 0.8 percent. The company said Uniqlo’s Japanese sales fell 14 percent in February.
The strategists at the major bank ING warn their Asian customers against optimism: “The keys are currently volatility and uncertainty. This will remain so in the near future.”
Government bonds rise again
Yields on ten-year government bonds rose again significantly, from 1.708 to 1.862 percent. That was the biggest one-day gain since March 18, 2020, when the US pandemic was just beginning. “Investors continue to prefer quality and security,” says capital market expert Mohamed El-Erian, who advises Allianz, among others. Japan followed the trend: The interest rate for ten-year Japanese government bonds was 0.165 percent in the morning, 0.035 percentage points higher than the previous day.
The foreign exchange market, meanwhile, remained broadly stable. The euro fell only slightly against the dollar on Wednesday, but the downtrend continued. A dollar cost 1.11 euros, making the European currency weaker than it had been for around two years.
The yen, on the other hand, depreciated only slightly against the dollar and the euro in Tokyo. In the first hour of trading, the dollar and euro were up 0.4 percent against the yen, to 115.59 and 128.28 yen respectively.
The Russian ruble also recovered in Japan after the drastic fall at the beginning of the week by seven percent to 1145 yen. Other important currencies such as the Swiss franc or the pound sterling were traded almost unchanged.
Gold and oil continue with tailwinds
Gold prices rose 0.5 percent. Platinum prices were broadly stable after a strong Tuesday. Speculators are betting that demand for platinum, for example for autocatalysts, will increase as a result of a possible supply failure of Russian palladium.
Brent crude oil continued the upward trend, however. The US variety WTI increased by up to nine percent and reached an eleven-year high of 112.51 dollars per barrel (159 liters). Prices have risen 21 percent since Monday alone, the biggest three-day gain since mid-May 2020.
Similar developments were seen in Asia: The price for a barrel of Dubai crude oil rose sharply again to 112.60, as on the previous day. The gold price in Japan also rose slightly to 7156 yen (55.76 euros).
Analysts, meanwhile, warn of the impact of high oil prices on the global economy. “A drop in demand alone could bring prices down again,” warns Edward Moya from the analysis firm Oanda. For every $10 increase in oil prices, US gross domestic product will fall by 0.2 percentage points.
cryptocurrencies
The two major digital currencies, Bitcoin and Ether, were slightly weaker on Wednesday. Bitcoin lost one percent and cost $43,950. Ether traded just below the important $3000 mark. Both Russia and Ukraine have strong interests in the cyber money. In the USA, on the other hand, there are signs of stricter regulation, including for the popular NFTs.
These are digital certificates of authenticity that are displayed on the blockchain and are currently experiencing a boom in digital art and status symbols. However, the US Securities and Exchange Commission is investigating whether NFTs would also be used as securities, as financial services provider Bloomberg reported.
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