Wall Street stocks rise as Jay Powell points to economic resilience

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Wall Street stocks rose on Wednesday as investors weighed comments from the Federal Reserve chair that signalled the US economy may be strong enough to withstand more interest rate rises.

The S&P 500 added 0.5 per cent after Fed chair Jay Powell began a two-day testimony to lawmakers. The moves extended gains from the previous session, when the S&P rose 2.5 per cent as traders hunted for bargains following a steep weekly drop.

The technology-heavy Nasdaq Composite share index rose 0.8 per cent on Wednesday, but remained almost 30 per cent lower for the year.

Powell on Wednesday told the US Senate banking committee that “the American economy is very strong and well positioned to handle tighter monetary policy”. But he also warned of “further surprises” from inflationary trends.

The Fed last week raised its main interest rate by 0.75 percentage points, the most since 1994, after US consumer price inflation hit a 40-year high in May.

But, so far, Powell’s testimony had broken “no new ground after last week’s policy action”, Pantheon Macroeconomics chief economist Ian Shepherdson said. He also noted Powell may have brought some relief to markets with “no specific mention” of plans for another extra large rate rise in July.

Money markets imply that the Fed will lift its main funds rate to about 3.6 per cent this year, with investors worrying that the combination of rising inflation and higher borrowing costs will threaten corporate profits and economic growth. The annual pace of US consumer price inflation rose to 8.6 per cent last month, after Russia’s invasion of Ukraine drove up energy and food prices.

On Thursday, closely watched purchasing managers’ indices produced by S&P Global — which collate executives’ responses to questions on topics such as input costs and order volumes — are expected to show that business activity has slowed in both the US and the eurozone.

“We look for both the manufacturing and services PMIs to provide further signs of weakening,” analysts at TD Securities said in a note to clients.

The yield on the 10-year US Treasury note, which moves inversely to its price and underpins global debt pricing, fell 0.16 percentage points to 3.14 per cent on Wednesday as demand for the low-risk asset rose.

The equivalent UK gilt yield dropped 0.18 percentage points to 2.47 per cent, after data showed British inflation rose to 9.1 per cent last month, increasing fears of a recession.

In Europe, the Stoxx 600 share index fell 0.5 per cent, recovering from steeper losses earlier in the day ahead of Powell’s testimony. A FTSE index of Asia-Pacific stocks outside Japan dropped nearly 2 per cent with Tokyo’s Topix closing 0.2 per cent lower.

Japan’s yen also tumbled to a 24-year low of ¥136.71 against the dollar as traders bet on the Bank of Japan maintaining ultra-low borrowing costs, in defiance of the global trend.

Oil benchmark Brent crude, which has risen sharply this year as western powers imposed sanctions on Russian exports, dropped 4.7 per cent to $104.31 a barrel.