The Dow rallies more than 600 points after the US Fed signals rate hikes may slow in 2019

Federal Reserve Chairman Jerome Powell. (Alex Wong / Getty Images)
  • Federal Reserve Chair Jerome Powell said Wednesday rates are “just below” a neutral level.
  • Wall Street rallied following his speech at the Economic Club of New York, with the Dow gaining more than 600 points.
  • Trade tensions were also in focus ahead of a meeting between President Donald Trump and China’s Xi Jinping.
  • The ASX looks poised to open higher after the gains on US markets, while the Australian dollar surged ahead in overnight trade.

Stocks surged Wednesday after Federal Reserve Chair Jerome Powell gave a speech received as more dovish than expected, lifting Wall Street to its best day in months following a series of bruising sell-offs in October and November.

The Dow Jones Industrial Average finished with a gain of 2.5%, or more than 600 points, marking its best day since March. The Nasdaq Composite gained nearly 3%, and the S&P 500 rose by 2.3%.

Powell said Wednesday that corporate credit levels and quality are top risks to the economy, but the outlook remains solid and rates are “just below” a neutral level.

“These comments tilt the odds just slightly in favour of fewer hikes in 2019,” said Adam Ozimek, an economist at Moody’s. “This is good news given that the economy is adding jobs quickly alongside a lack of accelerating inflation.”

Market watchers will continue to monitor for signs of whether recent turbulence in equity markets or ongoing trade tensions could influence the Federal Reserve’s rate path in meeting minutes out Thursday.

Treasury yields, which can point to market expectations for interest rates, fell following Powell’s speech. The 10-year shed 1.3 basis points to 3.046%, and the 2-year was down 2.6 basis points to 2.805%.

Trade-sensitive stocks, including Boeing (+4.8%) and Caterpillar (+5%), led the Dow higher. President Donald Trump and Chinese President Xi Jinping are expected to meet at the G20 in Argentina on Saturday, with tariff escalations between the world’s largest economies on the line.

On Tuesday, New York Times reported that Trump is worried about the long-term effects his trade policies could have on the market and the economy. Still, the president told The Wall Street Journal this week that he expects to increase tariff rates on Chinese imports in January.

Oil plunged more than 3% after the US said in a report that stockpiles climbed for a 10th straight week. Prices plunged deeper into bear territory, with West Texas Intermediate trading around $US50.50 per barrel and Brent below $US59. OPEC and other major producers are expected to discuss coordinated output levels at a meeting next week.

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