Powell expects strong United States growth in 2017

Ann Santiago
March 3, 2018

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USA steelmaker stock prices jumped on the news after Trump vowed to rebuild American steel and aluminum industries at a meeting of US industry officials at the White House.

Powell, 65, gave his first congressional testimony as chairman this week.

In reaction, Canadian Trade Minister Francois-Philippe Champagne said any USA tariff or quota imposed on Canada's steel industry would be "unacceptable" and would be felt in both Canada and the United States. "It would raise the price of autos, look at the auto stocks".

The market reaction was uneven. Hong Kong's Hang Seng index finished up 191.26 points or 0.62 percent at 31,035.

"We just need to take a deep breath", said Omair Sharif, senior USA economist at Societe Generale in NY.

The dollar hit a five-week high versus a basket of currencies, lifted by Fed Chairman Jerome Powell's upbeat assessment of the U.S. economy on Tuesday. "It's going to raise prices no matter what", said Peter Costa, president at Empire Executions Inc in NY. "All of those stocks that have steel or metal, they slid up".

European markets opened lower following disappointing earnings reports.

Higher rates make bonds more attractive as investments and can divert buyers away from stocks. The euro, British pound and yen all rose versus the greenback, which pared earlier gains. The SPX dropped during Powell's testimony, while the VIX and the 10-year Treasury yield spiked.

The Fed chairman also noted that the inflation-adjusted gross domestic product rose at an annual rate of about three percent in the second half of 2017.

Following Powell's remarks, the margin between US shorter- and longer-dated yields narrowed.

Fed Chairman Jerome Powell told Congress that he's more optimistic about the economy, which led some investors to anticipate four rate increases for 2018, up from the three of past year.

Addressing the house financial services committee, Mr Powell said the economy had been stronger this year than he expected in December, as he vowed to forge ahead with gradual increases in interest rates to avoid an "overheated economy".

"In many ways, the Fed is going to be considering things against a backdrop of an economy that's expanding above trend with excess demand and no spare capacity, and against a backdrop of pretty strong fiscal stimulus", said David Page, senior economist at AXA Investment Managers. Governor of the Bank of England Mark Carney will also be speaking on Friday morning, with investors continuing to ramp up their expectations for the pace of interest rate hikes from the United Kingdom central bank in 2018. Consumer spending fell 1.9% month-over-month in January, faster than the 1.2% drop in December.

Elsewhere, the United Kingdom pound extended a decline and the nation's bonds rose after the European Union published a draft Brexit treaty, with Prime Minister Theresa May squaring off for a fight. "Gradual" has been the operative word since the Fed began raising rates under Powell's predecessor, Janet Yellen, in late 2015. Other Fed speakers this week are Bill Dudley.

The S&P 500 was up almost 3 points, or 0.1 percent, at 2,748, as of 11:20 a.m. Adjusted for inflation, personal spending declined 0.1 percent from the prior month.

The MSCI All-Country World Index declined 1 percent.

The Standard & Poor's 500 index fell 3 points, or 0.1 percent, to 2,710. Comcast's Class A shares lost 7.4 percent.

Among gainers, energy pumped 0.7% higher, consumer staples picked up 0.3%, and industrials gained 0.1%.

The 10-year Treasury yield held just below 2.9%.

Gold prices fell 1.3% or $17 now trading at $1,315 an ounce.

West Texas Intermediate crude decreased 0.4 percent to $61.38 a barrel.

Spot gold was flat at US$1,317.94 per ounce by 1.34pm EST (1834 GMT) and was poised to close February down 2 per cent.

Information for this article was contributed by Sophie Caronello of Bloomberg News.

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