US stock markets rallied strongly and the dollar was hit after the Fed Chair came out with significantly more dovish comments than we’ve heard from him so far during his tenure. In a relatively sharp turnaround from when we last heard from him, Jerome Powell advised that interest rates are “just below” neutral indicating that the Fed may not be too far off ending it’s current tightening cycle. Shares rallied strongly with the major US indices all finishing the day well over 2% up and the Dxy dropped 0.7% swiftly on the news with risk currencies having a particularly strong day against the greenback with Aussie and Kiwi punching strongly out of recent ranges.
It was a welcome relief for the market to have something other than the pending G20 meeting to focus on yesterday and the Fed Chairman delivered nicely with his move over to more dovish sentiment. A December rate hike still looks on the cards but we should see more volatility over the next few sessions on pricing for hikes into the new year. However, the momentum from these comments may slow quickly over the next couple of trading sessions as once again market focus moves back to Buenos Aires and the meeting set to take place between President Trump and President Xi. The impact that the US-China trade issue has had on markets over the last twelve months has been huge and should continue to supersede underlying fundamentals in the short term, however longer term players may look back to Powell’s speech last night as a significant turning point for market direction as we move into 2019.
Looking ahead to today’s trading day and there are some risk events that could cause some further volatility in the markets, first up in the antipodes we have Kiwi Business Confidence data and then the Australian Private Capex numbers. The main focus in the London session will be a speech from ECB President Draghi in Frankfurt, but the focus will once again turn back to the Fed and the US economy with the release of the latest PCE Price Index numbers early in the US day and then last FOMC Meeting Minutes toward the end of the session.