Powell's Minority Testament Pushed Markets Higher

Any negative tunes we saw at the beginning of this week have completely vanished, as U.S. stock market has not only recovered losses of the first half of the week, nut posted new highs. Moreover, all of the stocks were rising. The broad market S&P 500 index rose by 1.0%, while high-tech Nasdaq 100 gained 1.6%, and Dow Jones is up by 0.9%.

U.S. stock market is in a large contrast with the stock market over the pond where German DAX lost 0.9% and British FTSE 100 was down by 0.5%. However, this contrast is largely distinguished by information background devoted exclusively to the American stocks.

The testament of the Jerome Powell before congressional oversight panel on Tuesday has become the trigger that waved away all investors’ fears of earlier monetary stimulus tapering of monthly $120 billion and possible earlier than indicated before rise of interest rates in 2022-2023. So, Mr. Powell has completely trashed out all June meeting changes in the monetary policy made by the FOMC, and resumed his rhetoric of transitional inflation and stimulus measures as long as needed to support full employment.

Surprising duality of the Fed is easily explained by the ambiguity of FOMC’ members position. The minority of monetary policymakers together with J. Powell is ignoring the fact of extraordinary high inflation and the strong and persistent influence of it caused by heavy money printing in the United States. The opinion of the majority of the FOMC that was drawn in the “dot plot” expectations of earlier interest rates hike was simply ignored.

Their opinion may sound stronger after the publication of May PCE Price index in the U.S. Technical picture in the S&P 500 index suggests that is should dive below 4250 points at least.

Oil market has also surprising tunes as Brent crude prices rose by 1.5% this week after crude reserves in the United States showed another decline by 7.6 million barrels.

Crude prices were on the verge on Wednesday after Iran officials said that they have agreed with the U.S. to lift all economic sanctions. However, U.S. side has immediately refuted Iranian statement by saying that nothing has been signed by the moment.

Brent crude prices remained above the support at $74.30 per barrel but below the resistance at $75.50. So, we may see Brent crude prices to end up this week within this range of $74.30-75.50 per barrel.

Gold prices failed to recover from last week lows. And that is another signal that last FOMC meeting has change situation on money markets. U.S. 10-year Treasuries’ yields continue to hang down 1.5%. But even strengthening U.S. debt prices are not enough to push gold prices higher. This also suggests that the downward trend in gold prices would likely to continue.

No significant changes were seen on the currency market. The EURUSD failed to go above 1.19350 making further downside movement a basic scenario for the Euro.

GBPUSD tried to extend its upside movement from 1.38100 in the middle of the week, but ran out of steam after Bank of England left its loose monetary policy unchanged, and slumped towards 1.38100 level.

The USDJPY made it to the important resistance level at 111.00, and tries to perform a reversal move from it. Further dynamics of the pair would largely depend from U.S. stock market movements.