Instant view: Stocks climb, dollar and U.S. Treasury yields fall as Powell speaks

© Reuters. FILE PHOTO: A trader works on the trading floor at the New York Stock Exchange (NYSE) in New York City, U.S., January 27, 2023. REUTERS/Andrew Kelly/File Photo

NEW YORK (Reuters) - U.S. stocks rallied while the dollar and Treasury yields fall as Chair Jerome Powell said the jobs data on Friday showed why the central bank has some ways to go on raising rates in a conversation hosted by the Economic Club of Washington.

MARKET REACTION:

STOCKS: Dow up 0.6%, S&P 500 up 0.89%, Nasdaq up 1.25%

BONDS: The yield on 10-year Treasury notes was down 1.8 basis points to 3.614%; The two-year U.S. Treasury yield was down 5.4 basis points at 4.402%.

FOREX: The dollar index fell 0.425%, with the euro up 0.15% to $1.0746.

COMMENTS:

RICK MECKLER, PARTNER, CHERRY LANE INVESTMENTS, NEW VERNON, NEW JERSEY

“He’s just not as bearish as people expected, and this is now the second time. The first time he spoke (after the FOMC meeting), he really turned the market dramatically. Then the employment number came out and it took some of the shine off his statement, and the assumption was maybe he spoke too soon."

“But he seems to reiterate that fact that in his view inflation is cresting. And that’s been the biggest fear for participants in the market that with all the rate increases that in the Fed’s view no real progress is being made against inflation. And he’s saying ‘no, it’s having its effect.’ So, it's giving a lot of support to people who were looking for a time to get back into the market."

“There’s no reason why the market can’t progress under some normalized rate levels. The fear of the market was that this (inflation) was spiraling out of control and would continue higher and higher. He certainly isn’t saying we’re heading back to the environment we were in anytime soon. Maybe sitting at these rate levels is enough to allow the economy to progress and stock prices to continue to grow.”

SHAWN CRUZ, HEAD TRADING STRATEGIST AT TD AMERITRADE, CHICAGO, ILLINOIS

“Powell reiterated that he sees declines in inflation coming and that means he may be able to be less hawkish in terms of tightening policy.”

“He expects they’re not going to be cutting rates anytime soon, but that there is a good path, that they’re accomplishing what they need to accomplish.”

“That feeling that they would go even higher than some expected is going away so it’s going to help markets.”

“You should still expect elevated levels of volatility. There is the CPI next week and everyone should keep an eye on that, but it is going to be a little bit of trying to track what’s happening with the economy. It is going to be a driver of volatility.”

MICHAEL JAMES, MANAGING DIRECTOR OF EQUITY TRADING AT WEDBUSH SECURITIES IN LOS ANGELES

    "Powell isn't doing anything in his interview thus far to walk back any of the comments that were made last week, which essentially is ammunition for the bulls to continue with expectations that we've seen peak inflation, that the data is going to continue to be disinflationary."

    "Markets are factoring in or at least implying 25 basis point hikes at the next two meetings. Those with the more bullish bias are expecting, based on the data, that you'll see 25 basis points at the next meeting and no rate hike at the May meeting. That's my interpretation of what's causing the bullishness to continue in markets today."

    "This is not walking back anything that was said last week which was interpreted in a very bullish manner. The fact he's not throwing cold water on that is why you're seeing at least initially higher markets. There's still another three hours to go today." 

ART HOGAN, CHIEF MARKET STRATEGIST, B. RILEY WEALTH, NEW YORK 

"His commentary post the Fed meeting last week was very balanced, right? Speaking to both effective disinflation has started, but they've got more work to do and he's repeated the same thing."

"The consensus (for terminal rate) has already moved post the Friday jobs report. We saw consensus sort of sitting at the 4.75% to 5%,  that has now moved from 5% to 5.25%. Consensus also has removed the 125 basis point rate cut from the end of this year. So therefore, his commentary sort of lines up with the street expectations."

BRIAN JACOBSEN, SENIOR INVESTMENT STRATEGIST, ALLSPRING GLOBAL INVESTMENTS, MENOMONEE FALLS, WISCONSIN

"Powell did a good job emphasizing that monetary policy is about playing the long game. One strong jobs report isn’t enough to distract him. Falling inflation with a low unemployment rate isn’t an argument for hiking more. If anything, the Fed should just take the win and be grateful it didn’t do too much more collateral damage than it already has."

JOE SALUZZI, CO-MANAGER OF TRADING, THEMIS TRADING, NEW JERSEY 

“He (Powell) is not saying anything that would make you think he's going to raise rates more than what the market is anticipating at this point.”

“The first question that the interviewer asked him was if you would have seen that jobs report, would have done something different and it didn't sound like he would have.”

“So I guess what he (Powell) is not saying is more important than what he's saying.”