Stock indices shot up yesterday after Jerome Powell said a recession is not the most likely case. The US Dollar strengthened while treasury yields remained mostly unchanged, and the Yen continued to fall.
Indices erase losses on Powell’s words about a resilient economy
The stock indices were in negative territory when the market opened yesterday, but they soon turned around after the presidents of the central banks gathering in Portugal made some remarks.
The S&P 500 erased losses to remain marginally higher than where it closed the previous day, while the Nasdaq 100 recovered all losses and was trading in the green.
A difficult session for chipmakers was mitigated by large-cap stocks like Tesla, Inc. and Amazon.com Inc., with Nvidia Corp. plunging on news that the US is exploring further limits on the sale of AI processors to China.
Banks expected to pass Fed’s stress test
The Federal Reserve’s (Fed) stress test is expected to be passed by banks, which could alleviate concerns about the stability of the US financial system that have recently dampened market risk sentiment.
Mega-cap stocks surged from their session lows after Fed chief, Jerome Powell, stated that a recession is not the most likely scenario because the economy is still relatively robust. This is evident from released economic statistics showing that consumer confidence, orders for durable goods, and the real estate sector all exceeded market expectations.
Forex market: US Dollar boosted, especially against the Yen
Even though government yields remained basically unchanged yesterday, the US Dollar gained ground, notably versus the Yen. After Governor Ueda stated yesterday in Portugal that the Bank of Japan showed no signs of altering its ultra-expansionary monetary policy, the Japanese Yen continued to decline. The Japanese central bank does not believe that the 2% inflation level has been reached yet, and short-term expectations of a tightening of monetary policy are fading. These factors are pushing the Yen downward and raising the possibility of an intervention to prevent an excessive weakening of the currency.
While the USD/JPY pair has been increasing during June, it is still a long way from its peak in October 2022, which was near 152.00.
USD/JPY monthly chart. Sources: Bloomberg, Reuters
- The Nasdaq 100 and S&P 500 indices gained
- Tesla Inc. and Amazon.com Inc. offset a tough session for chipmakers
- Analysts expect banks to pass the Fed's stress test
- Powell states a recession is not the most likely scenario
- US Dollar strengthened, especially against the Yen