Strong gains on Wall Street, Powell announces smaller rate hikes

Boss Fed announced a slowdown in the pace of interest rate increases in the US, which caused euphoria on Wall Street. Positive news for stock exchanges also comes from Europe and China.

Nasdaq gained nearly +5% after Powell's speech

The time to ease the pace of rate hikes may come as early as the December meeting, Fed Chairman Jerome Powell said on Wednesday. US indices, which had been hovering at levels from the previous day's closing until Powell's public appearance, surged sharply. Finally, the DJIA gained 2,18 percent yesterday. up to 34589,77 points and found itself at levels not seen since April this year. The S&P 500 index gained 3,09 percent. up to 4080,11 points and closed at its highest level since September. technological Nasdaq however, it shot up by 4,41 percent. up to 11468 points and is one step away from breaking the local peak from the first half of November.

Wednesday's increases significantly changed the balance of power on the daily chart US500. After breaking the local maximums from November, the chart was at the level of the 11-month bearish line and is in an excellent starting position to attack this supply barrier. If this happens, the target for the bulls will be the holiday peak at 4325,20 points.

US500 daily chart (S&P500 CFD). Source: Tickmill

Powell's words are in line with the slightly worse-than-expected data from the US labor market published yesterday. According to the ADP report, in November private sector employment rose by 127, while the market consensus assumed an increase of 200. This shows that the interest rate increases so far have a real impact on the economic slowdown, which will allow further reduction of inflation in the US.

Europe is also optimistic

Optimistic signals for stock markets come not only from the US, but also from Europe and China. Published on Tuesday and Wednesday inflation data from Europe suggest that both the largest European economies, as well as the entire euro area, have passed the peak of inflation. Although this will not affect the December decision of the ECB, and then interest rates will probably increase by 50 basis points, it allows us to expect a further decline in inflation in 2023, and thus lower interest rates in the euro area.

From China, on the other hand, there are more and more new signals indicating a slow change in the approach of the local authorities to the zero-COVID policy. This strengthens market expectations for a departure from this policy in 2023, which, together with also expected actions to support weakening economic growth in China, should be a positive impulse for the markets.