Global stocks waver after Fed’s Powell says surging US inflation will fade

Traders work on the floor of The New York Stock Exchange
  • US stocks looked set to open lower on Thursday as investors digested Jerome Powell’s comments.
  • The Fed chair presented a dovish testimony to Congress and suggested inflationary pressure won’t last.
  • China’s second-quarter GDP rose 7.9%, slightly missing economist forecasts for an 8% increase.
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Global stocks whipsawed on Thursday after Fed Chairman Jerome Powell said he sees much of the inflationary pressures as transitory, and indicated the shift to tightening monetary policy won’t take place anytime soon.

Futures on the Dow Jones, S&P 500, and Nasdaq fell 0.2%, suggesting a lower start to trading later in the day.

In his congressional testimony on Wednesday, Powell said the recent inflation data so far has been higher than expected or hoped for, but is linked to a “small group of goods and services directly tied to the reopening.”

He cited the price of lumber, now trading at 8-month lows after rallying 275% since May 2020, as an example of many of the transitory factors.

US 10-year Treasury yields were last down 3.5 basis points at 1.314%, with lower real rates and inflation expectations contributing to the decline, Deutsche Bank analysts said.

Elsewhere in Europe, equities traded lower as investors digested Powell’s comments and awaited more earnings releases.

The UK unemployment rate rose to 4.8% in the three months to May, from 4.7% in the three months to April, but was down from 5% in the previous quarter. UK markets showed little reaction to the data.

But COVID-sensitive stocks are one area that continue to struggle as investors assess the global spread of the delta variant, with the STOXX 600 travel and leisure index falling a further 0.9% for a third consecutive monthly decline.

London’s FTSE 100 was about flat, the Euro Stoxx 50 fell 0.3%, and Frankfurt’s DAX fell 0.5%.

Asian markets were mostly higher after China posted growth of 7.9% in the second quarter, slightly missing economists’ expectations for an 8% increase. But other data for June surprised to the upside, with retail sales coming in at a year-on-year growth rate of 12.1%, compared to the expected 10.8%.

The Shanghai Composite rose 1%, Hong Kong’s Hang Seng rose 0.8%, while Tokyo’s Nikkei fell 1%.

Oil prices fell after the United Arab Emirates and Saudi Arabia reached a compromise on production, with the former said to have secured a higher baseline for its crude output. The threat of weaker OPEC+ cohesion and higher than anticipated production will cap oil price gains for now, Jeffrey Halley a senior market analyst at OANDA, said.

Brent crude fell 1.47%, to $73.66 a barrel, and West Texas Intermediate fell 1.7%, to $71.84 a barrel.

Read More: BANK OF AMERICA: Buy these 22 stocks set to completely crush earnings expectations as volatility around reports creates a stock-picker’s paradise

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The Fed could start tapering bond purchases this year, San Francisco Fed President Mary Daly says

Mary Daly Federal Reserve San Francisco
Mary Daly, president of the San Francisco Federal Reserve.

  • The Federal Reserve could start slowing down its asset purchases in 2021, San Francisco Fed President Mary Daly told CNBC on Tuesday.
  • ‘It is appropriate to start talking about tapering,’ in light of recovery in the US economy, Daly said.
  • Daly said the Fed could start curbing purchases later this year or in early 2022.
  • See more stories on Insider’s business page.

The Federal Reserve may begin slowing down asset purchases beginning this year as the world’s largest economy continues to strengthen following the recessionary blow suffered during the coronavirus pandemic, San Francisco Fed President Mary Daly said Tuesday on CNBC.

The central bank has been buying $80 billion worth of Treasury securities and $40 billion in mortgage-backed securities since June 2020 in an effort to help the economy recover from COVID-19 crisis.

“It is appropriate to start talking about tapering asset purchases, taking some of the accommodation that we have been providing to the economy down,” Daly told CNBC in an interview.

“We’ll still be in a very accommodative position with a low funds rate, but we don’t need all the tools we see the economy get its own footing,” she said. Daly didn’t pinpoint an exact timeline but said purchases could be curtailed in late 2021 or early in 2022.

Economic recovery along with a surge in US inflation – and to what extent that it’s transitory – has prompted debate in markets over when the Fed will start pulling back on its asset purchases of $120 billion per month.

On Tuesday, government data showed consumer prices rose 0.9% between May and June, much hotter than a 0.5% rate expected by economists in a Bloomberg survey. The CPI climbed to 5.4% in June from the year-earlier period, the highest rate since August 2008.

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