Updated at 11:53 am EST
U.S. stocks traded firmly higher Friday, while the dollar retreated and Treasury bond yields held steady, as investors drew comfort from both the certainty of Fed rate hikes and the prospects of a soft landing for the world’s biggest economy.
Stocks were also supported by softer-than-expected inflation data from China, where consumer price gains slowed to an annual pace of 2.5%, and rose faster than producer prices for the first time in more than two years.
Federal Reserve Chairman Jerome Powell’s forty minute discussion with Cato Institute president Peter Goettler yesterday, his last public remarks before the September 21 policy meeting, essentially cemented the case for a third consecutive 75 basis point rate hike.
The consistency in Fed messaging, however, appears to be having its affect, with traders now less focused on the size of the September hike in favor of when and how Powell and his colleague will reach the so-called ‘terminal’ Fed Funds rate.
Three Fed officials — Charles Evans, Christopher Waller and Esther George — will speak this morning and are likely to reiterate the collective path, and destination of the terminal rate.
If that rate, expected to be north of 4%, proves restrictive enough to tame inflation, but not so high as to choke off growth prospects, the Fed will have engineered the so-called ‘soft landing’ necessary to allow for further corporate earnings growth.
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Help in that respect came from an overnight jump in the euro, which rose to 1.005 against the greenback and pushed the U.S. dollar index 0.7% lower, to 108.891, against a basket of its global currency peers.
The moves were attributed to yesterday’s jumbo ECB rate hike, the biggest on record, and the unambiguously hawkish signaling from ECB President Christine Lagarde.
The softer dollar once again added to upward pressure on oil prices, offsetting reports that the White House is considering another release of crude from the Strategic Petroleum Reserve early next year.
WTI crude futures for October delivery were marked $2.24 higher on the session at $85.78 per barrel while Brent contacts for November, the global benchmark, added $2.35 to trade at $91.49 per barrel.
On Wall Street, the S&P 500 was marked 48 points higher in the opening hour of trading while the Dow Jones Industrial Average gained 310 points. The tech-focused Nasdaq was up 205 points.
In overseas markets, Europe’s Stoxx 600 benchmark gained 1.4% by the close of trading in Frankfurt, while the region-wide MSCI ex-Japan index gained 1.6% to help world stocks rise to the highest level in more than a week.
In Britain, the FTSE 100 was marked 1.2% higher on the session, although trading volumes were muted as the nation enters a twelve-day mourning period to celebrate the life, and mark the passing, of Queen Elizabeth II, the nation’s longest-reigning monarch.
King Charles III, 73, will meet with Prime Minister Liz Truss on Friday, and address the nation later today, while a meeting of the Accession Council, which manages changes in the monarch, is expected to convene Saturday at St. James’s Palace.
Flags at Royal residents, as well as around the country, will fly at half-mast, while a gun salute, consisting of 96 rounds, will be fired by the 104 Regiment Royal Artillery at Cardiff Castle at 1 pm London time.