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Research Market strategy
by Swissquote Analysts
Morning News

Fed Chairman Powell Sees Flexibility on Rates This Year

Topic of the day

Federal Reserve officials on Friday laid the groundwork to take a break from raising short-term interest rates in coming months, propelling stock prices already cheered by a stronger-than-expected December jobs report. Fed Chairman Jerome Powell said mild inflation would give the central bank greater flexibility to set policy in the year ahead and that the Fed, which raised rates once every quarter last year, wasn't on a "pre-set" path to push its benchmark rate higher. "With the muted inflation readings that we've seen coming in, we will be patient as we watch to see how the economy evolves," he said at a conference in Atlanta. Central-bank officials had been reluctant to signal such a pause until recently because U.S. economic data have been strong and, until last fall, asset markets were buoyant, fueling worries about potential financial bubbles. After their worst two-day start to a year since 2000, stock prices bounced back strongly on Friday, after Mr. Powell's comments and the report showing employers added a robust 312,000 jobs last month. That combination mitigated investors' worries about an economic slowdown. Fed officials last month raised rates by a quarter percentage point to a range between 2.25% and 2.5% and penciled in two more increases in 2019 assuming the economy would continue to grow above the 1.9% trend they see as likely over the long run.

Swiss stocks

Good news buoyed the SMI Friday to close 1.7 percent higher at 8,609 points, with all 20 components closing up on reports of new developments in the US-China trade dispute talks, and the surprise lowering by one percentage point of the minimum reserve rate by the Chinese central bank. A slight rise in the Chinese Caixin purchasing managing index for the services sector in December indicating expectations of expansion. Also, the US December labour market report was much better than expected and a statement by US Federal Reserve President Jerome Powell about possibly changing monetary policy was interpreted by markets as indication of a possible abandonment of further tightening. Investors found new appetite for cyclical stocks, with Adecco rising 4.6 percent, ABB up 2.5 percent and Lafargeholcim up 5.4 percent. Watch stocks, which had come under pressure from weak economic data from their key Chinese market, also benefited, with Swatch up 3.5 percent and Richemont up 3.8 percent. Defensive heavyweights performed worse than the market. Nestle, Novartis and Roche “only” gained between 0.7 percent and 1.3 percent.

International markets

Europe

The Stoxx Europe 600 closed sharply higher, up 3.4% at 343.88, led by gains in oil-related and mining stocks, after strong U.S. jobs data, comments by U.S. Federal Reserve Chairman Jerome Powell that the Fed could shift policy if needed and earlier better-than-expected data out of China. "Perhaps more questions will be asked come Monday and the start of a new week, but for today the bulls are firmly in control," IG analyst Chris Beauchamp said. Shares in Aker BP jumped 9%, Tullow Oil lifted 6.9% as Brent crude advanced 2%. Chilean copper miner Antofagasta gained 6.45%, while German pharma giant Bayer jumped 6.6% after a court victory in the run-up to trials over whether recently-acquired Monsanto Co. weedkillers can cause cancer. Germany's DAX ended up 3.4%, France's CAC 40 up 2.7%, the U.K.'s FTSE 100 up 2.2%, Italy's FTSE MIB up 3.4% and Spain's Ibex 35 rose 2.5%.

United States

U.S. stocks bounced back from their worst two-day start to a year since 2000, soaring after fresh signs of economic strength eased fears that slowing growth around the world could drag on the U.S. expansion. The Dow Jones Industrial Average jumped nearly 750 points as better-than-expected hiring in December suggested a healthy labor market. Stocks rose further after Federal Reserve Chairman Jerome Powell said economic data suggests good momentum heading into the new year, but that the central bank is "prepared to adjust policy quickly and flexibly" if necessary. The combination mitigated investors' worries about an economic slowdown. Those fears sent waves of volatility sweeping through stock and bond markets in recent weeks and drove the Dow industrials and S&P 500 to their worst December since 1931. On Friday, the blue-chip index rose 746.94 points, or 3.3%, to 23433.16 and the S&P 500 added 84.05 points, or 3.4%, to 2531.94, with both indexes ending the week more than 1% higher. The Nasdaq Composite gained 275.35 points, or 4.3%, to 6738.86, putting its weekly gain at 2.3%.

Asia

Big early gains in most Asia Pacific stock markets have persisted, following Friday's surge in U.S. equities and as recent volatility continues with most benchmarks gaining at least 1%.

Bonds

Treasury prices fell after a strong Labor Department employment data and comments from Federal Reserve Chairman Jerome Powell emphasizing the central bank's willingness to be flexible in setting interest rates. The yield on the two-year Treasury note, which moves with expectations for Fed policy, had its biggest one-day jump in almost four years, climbing to 2.488% compared with 2.391% Thursday. The yield on the benchmark 10-year Treasury note increased to 2.661% from 2.557%.

Analysis

CS lowers the Lonza target to 300 (330) CHF - Outperform
UBS lowers the Glencore target to 300 (360) p - Neutral
IR lowers the Prosieben target to 16 (19) EUR - Hold


Produced by MBI Martin Brückner Infosource GmbH & Co. KG on behalf of Swissquote. All news is acquired with journalistic accuracy. No liability is assumed for delays or errors

 
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