Equities advanced the most in eight months after a dovish tone from the Federal Reserve chairman fueled speculation the central bank is closer than thought to pausing on rate hikes. FAANG led the markets higher.
The Chairman said the economic outlook remains “solid,” bolstering expectations for a rate hike when the central bank meets next month, but he noted that effects of higher rates take time to show up in the data. All told, the markets surmised the Fed is likely to reduce the number of hikes or outright stop them next year. At this juncture the market is expecting between two three increases.
The Chairman reiterated past remarks of all Fed chieftains that the policy is data dependent.
Are the gains sustainable? Myopic attention will now be focused upon the G-20 meeting. Will there be any substantive policy changes?
Last night the foreign markets were mixed. London was up 0.48%, Paris up 0.51% and Frankfurt up 0.11%. China was down 1.32%, Japan up 0.39% and Hang Sang down 0.87%.
The Dow should open moderately lower with some suggesting that yesterday’s advance was overdone. The 10-year is up 11/32 to yield 3.03%.
Ken Engelke
Chief Economic Strategist Managing Director
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