Stocks soar after jobs report, Powell remarks, trade talks,

by Ike Obudulu Posted on January 4th, 2019

New York City: Global stocks are soaring Friday and reversing the big losses they suffered just a day ago. The Dow Jones Industrial Average soared almost 600 points in the latest twist in a wild three months for markets.

Hopes for progress in the U.S.-China trade dispute, a strong report on the U.S. jobs market and comments from the head of the U.S. central bank about its interest rate policy all combined to cheer investors.

China’s Commerce Ministry said trade talks will be held Monday and Tuesday in Beijing and market watchers are once again looking for signs the world’s largest economic powers will make progress toward resolving their dispute. The trade tensions have dragged on for nearly a year and uncertainty over their outcome has dragged down stock indexes around the world.

Meanwhile the Labor Department said U.S. employers added 312,000 jobs last month, a far stronger result than experts had anticipated. U.S. stocks have tumbled over the last three months as investors worried that the economy might slow down dramatically because of a variety of challenges including the trade dispute and rising interest rates. The stock market’s plunge also threatened to shake up the confidence and the spending plans of businesses and consumers. Some analysts said investors were acting as if a recession was on the horizon, despite a lack of evidence that the U.S. economy is struggling.

“It’s hard to square recession worries with the strongest job growth we’ve seen in years,” said Alec Young, managing director of global markets research for FTSE Russell. “The strong December jobs report is a net positive for stocks because investors’ biggest concern has been slowing growth.”

Stocks rose even further after Federal Reserve Chairman Jerome Powell said the central bank will be flexible in deciding if and when it raises interest rates. He added that the Fed is open to making changes in the way it shrinks its giant portfolio of bonds. Recently investors were rattled when Powell seemed to suggest the Fed was intent on raising rates further after gradual increases over the past three years. He also implied the Fed didn’t plan to make changes to the runoff of the bond portfolio.

The S&P 500 index climbed 65 points, or 2.7 percent, to 2,512 at 11:30 a.m. Eastern time, more than wiping out Thursday’s loss. The Dow added 578 points, or 2.6 percent, to 23,254 after rising as much as 691 points. The Nasdaq composite jumped 231 points, or 3.6 percent, to 6,694.

The U.S. and China have raised tariffs on billions of dollars of each other’s goods in a fight over issues including Beijing’s technology policy, which Washington alleges is predatory. Last month, President Donald Trump and Chinese leader Xi Jinping agreed to 90-day ceasefire as a step toward defusing tensions.

Technology companies, banks, health care and industrial companies all made strong gains. Microsoft rose 4.4 percent to $101.70 and Deere gained 3.7 percent to $149.31. Retailers and internet companies rose as well, with Amazon up 4.1 percent at $1,561 and Google’s parent company, Alphabet, rising 4.1 percent to $1,067. Most of the companies in those industries stand to do better in times of faster economic growth.

On Thursday the S&P 500 fell 2.5 percent after Apple said iPhone sales in China are falling and a survey suggested U.S. factories grew at a weaker pace. Technology companies took their biggest losses in seven years.

Smaller and more U.S.-focused companies did even better than larger multinationals. The Russell 2000 index surged 41 points, or 3.1 percent, to 1,372. Smaller companies have fallen further than larger ones in the last few months as investors got nervous about how the U.S. economy will perform in 2019 and 2020.

Bond prices also changed course and moved sharply lower. The yield on the 10-year Treasury note rose to 2.65 percent after it plunged to 2.55 percent Thursday, its lowest in almost a year. That helps banks, as higher interest rates allow them to make bigger profits on mortgages and other loans.

JPMorgan Chase rallied 2.4 percent to $99.45 and Citigroup rose 4 percent to $54.67.

European shares recouped losses from a day earlier, with Germany’s DAX gaining 3.4 percent and France’s CAC 40 rising 2.9 percent. Britain’s FTSE 100 advanced 2.3 percent.

In Asia, Hong Kong’s Hang Seng jumped 2.2 percent. South Korea’s Kospi added 0.8 percent. Japan’s Nikkei 225 index fell 2.3 percent on its first day of trading in 2019 as technology and electronics makers slumped on Apple’s report that Chinese iPhone sales were slipping.

U.S. crude oil surged 2.4 percent to $48.21 a barrel in New York. Brent crude, used to price international oils, was up 3.1 percent to $57.66 per barrel in London.

The dollar strengthened. It rose to 108.27 yen from 107.77 yen. The euro rose to $1.409 from $1.1391. The British pound moved up to $1.2717 from $1.2630.

Federal Reserve Chairman Jerome Powell said Friday that he will not resign if asked to do so by President Donald Trump, a message that heartened investors who had been concerned by Trump’s repeated attacks on his hand-picked choice to lead the nation’s central bank.

Appearing on a panel in Atlanta with his two predecessors — Janet Yellen and Ben Bernanke — Powell said the central bank intends to be flexible going forward in determining when to hike its key policy rate. He also said that the Fed could alter its approach to trimming its huge balance sheet if it determines such a change is needed.

The pace of Fed rate hikes and the lowering of the balance sheet, which tends to put upward pressure on interest rates, had both been concerns of investors in recent months. The stock market has seen stomach-churning declines since October, a development that Trump has blamed on the Fed’s continued rate hikes, although the president’s trade dispute with China as well as concerns about global economic growth also played a part in the market volatility.

Trump’s attacks had become so intense that they had raised concerns that he might be considering firing Powell, a development which could send the market into a further tailspin.

Asked if he would resign if Trump asked him to do so, Powell responded with a short “no.”

The Dow Jones Industrial Average added about 200 points during Powell’s appearance and was up about 600 points around 11:20 a.m. A strong U.S. jobs report and hopes that upcoming talks between the U.S. and China could pave the way for an end to the trade dispute also buoyed investors.

While Trump has sent out a number of tweets criticizing Powell and calling the Fed his biggest threat, Powell said that he had not received any direct pressure from the White House. Asked if he had had any face-to-face meetings with Trump, Powell said he had not although he said previous Fed leaders have had discussions from time to time with previous presidents.

Asked if any future meeting with Trump was scheduled, Powell said, “I have no news on that. Nothing is scheduled.”

Powell’s remarks came on a day when the government reported that the economy created a sizzling 312,000 jobs in December despite all the problems last month in terms of a falling stock market, rising trade tensions with China and at the end of the month a partial government shutdown.

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