Asian stock markets have edged higher this morning after Federal Reserve Chair Powell delivered his much-anticipated speech at Jackson Hole. Powell’s address contained two key points for the markets. First, that the Fed would allow inflation to overshoot its longstanding target of 2.0%, in order to achieve an “averaging effect”. Second, interest rates will stay lower for longer and longer.
Asian equities were led by after-hours US stock futures, with the S&P 500 e-mini and Nasdaq futures climbing strongly, both up by 0.50%, and Dow futures rising 0.60%. Not surprisingly, the US yield curve steepened with 30-year rates rising more than the 2-year short-end. That explains why bank stocks led the Dow Jones and S&P 500 higher overnight; in theory, banks make more money with a steeper positive yield curve.
Japan’s Nikkei 225 is 0.40% higher, with trade-sensitive South Korea and Singapore both liking what they saw on the rates front from Mr Powell. The Kospi has risen 1.30%, and the bank and property heavy Straits Times by 1.50%. In China, the Shanghai Composite is 0.70% higher, although the CSI 300 and Hang Seng are unchanged, reflecting the legacy company nature of the former. A fall in commodity prices, though, has seen the resource-heavy indices in Australia set to finish the week on a sour note. The ASX 200 is down 1.0% and the All Ordinaries has fallen by 0.50%
The trading wraps up with some key consumer releases in the United States. Personal Spending data for July will be released this evening, with the Core PCE Index expected to rise 0.50% MoM. Keep in mind that the data dates from July, and here we are almost in September, so it is unlikely to reflect the full effects of Covid-19 sweeping the US sunbelt. However, a negative reading may set up stock markets for a nervous finish and nip the incipient rise in US yields in the bud as quickly as it started.
Overall, the news from the Federal Reserve was mostly expected, and will not structurally change the buy-everything sentiment of global stock markets.
