US equities rose on Tuesday after Federal Reserve chairman Jay Powell’s remarks for the first time since January’s blockbuster jobs data sent a chill through markets.
In a question-and-answer session with the Economic Club of Washington, Powell warned that the US central bank may have to raise rates more than expected. But the remarks were less hawkish than investors had hoped, and the reaction in the market was one of relief.
After a bruising trade war dragged stocks into negative territory, US equities remained higher, with the benchmark S&P 500 up 1 percent on the day and the tech-heavy Nasdaq Composite up 1.4 percent.
The Bureau of Labor Statistics reported last week that the U.S. added more than half a million jobs in January, about three times what economists had expected. The unemployment rate fell to 3.4 percent, the lowest rate in 53 years.
Investors had anticipated that hot labor market data would inspire hawkish rhetoric from the Fed boss. But Powell appeared to largely repeat comments he made last Wednesday when the central bank’s policymaking body accelerated the rate of interest rate hikes, with an increase of 0.25 percent.
“Actually, Powell’s Q&A is more useful in what he didn’t say. Last week, the Fed provided a fairly dovish hike. The new information is the payrolls information is there. And Powell chose not to be more aggressive in the face of a very strong payroll report,” said Guy LeBas, head of fixed income strategy at Janney Montgomery Scott.
“He was given several opportunities to be more hawkish and he didn’t,” LeBas said.
The yield on the two-year Treasury yield, which moves with interest rate expectations, edged 0.02 percentage points higher to 4.48 percent. The move did little to offset a big jump in earnings since Friday’s payrolls report, which lifted it to a two-year high in a month. The milder reaction suggests less favorable sentiment among fixed income investors.
The dollar index, which tracks the U.S. currency against a basket of six peers, fell 0.2 percent. The dollar moves with interest rate expectations.
European stock markets ended a two-day sell-off, with Europe’s benchmark Stoxx 600 index closing up 0.2 percent. Germany’s Dax, which has risen 9 percent this year on hopes of a milder economic slowdown, finished down 0.2 percent. The FTSE 100 was the standout performer, rising 0.4 percent after gains from oil major BP.
Meanwhile, Asian shares rose, with China’s CSI 300 up 0.2 percent. Hong Kong’s Hang Seng index closed 0.4 percent higher.