Wall Street takes a breath after Powell rally while dollar falls

By Sinéad Carew and Marc Jones

NEW YORK/LONDON, Dec 1 (Reuters) – Wall Street equities
made little progress in Thursday’s choppy session as investors
digested economic data after a big rally in the previous session
from U.S. Federal Reserve signals that it would slow its
interest rate hiking pace.

The U.S. dollar index fell to its lowest level since August
and Treasury yields sank after Fed Chair Jerome Powell said on
Wednesday that it was time to slow rate hikes. He also pointed
to a protracted economic adjustment to higher borrowing costs
and a slow decline inflation as well as a chronic shortage of
workers in the United States.

While oil futures settled well below their session highs,
crude had risen sharply earlier in the session on the chance of
further supply cuts by OPEC+ and as easing COVID curbs in China
spurred hopes for higher demand from world’s top crude importer.

While equity investors cheered signs of moderating inflation
on Thursday and an increase in U.S. consumer spending in
October, risk appetites dimmed after data showed U.S.
manufacturing activity contracted for the first time in 2-1/2
years in November as higher borrowing costs weighed on demand.

Still investors saw easing inflation supporting the Fed
chair’s indication that rate hikes could slow. In the 12 months
through October, the personal consumption expenditures (PCE)
price index increased 6.0% after advancing 6.3% in September
compared with the Fed’s 2% target.

“We’re in a little bit of a limbo after yesterday’s huge
rally. Investors are still digesting that and waiting on the
payrolls data tomorrow,” said Garrett Melson, portfolio
strategist at Natixis Investment Managers Solutions. Friday’s
jobs report meeting or missing expectation could help stocks as
it would give the Fed support for easing rate hikes.

“All asset classes are one big rates trade,” he said. “We’re
seeing the setup as favorable for a rally through year end. The
bias is still bearish. There’s still a lot of investors who are
under-risked. Yesterday was ripping the Band-Aid off worrying
about Powell continuing to be hawkish and the ensuing scramble
to get exposure.”

The Dow Jones Industrial Average fell 194.76 points,
or 0.56%, to 34,395.01, the S&P 500 lost 3.54 points, or
0.09%, to 4,076.57 and the Nasdaq Composite added 14.45
points, or 0.13%, to 11,482.45.

The S&P had rallied 3% on Wednesday after Powell’s comments
while Nasdaq had gained more than 4% and the Dow had risen 2%.

MSCI’s gauge of stocks across the globe
gained 0.79% while emerging market stocks rose 0.63%.

The dollar index was last down 1.002% after hitting
its lowest point since Aug. 11, while the euro is up
1.12% to $1.0522, hitting its highest level against the
greenback since late June.

The Japanese yen strengthened 2.03% versus the greenback at
135.29 per dollar, while Sterling was last trading at
$1.2244, up 1.56% on the day.

In bonds trading, moderating inflation in October initially
pushed U.S. Treasury yields further down following Wednesday’s
move in response to the prospects of slower rate hikes.

Benchmark 10-year notes were down 19.4 basis
points to 3.507%, from 3.701% late on Wednesday. The 30-year
bond was last down 21.9 basis points to yield
3.6039%, from 3.823%. The 2-year note was last was
down 13.2 basis points to yield 4.2399%, from 4.372%.

In commodities, earlier in the day oil prices had risen
sharply ahead of the Dec. 4 meeting of the Organization of the
Petroleum Exporting Countries (OPEC) and allies including
Russia, a group known as OPEC+.

Though sources had said on Wednesday that policy change is
unlikely, some said that a further cut cannot be ruled out.

U.S. crude settled up 0.8% at $81.22 per barrel and
Brent settled at $86.88, down 0.1% on the day.

Gold prices climbed sharply as the dollar weakened.

Spot gold added 2.0% to $1,802.94 an ounce. U.S. gold
futures gained 3.17% to $1,801.40 an ounce.

(Reporting by Sinéad Carew in New York, Marc Jones, Samuel
Indyk and Alun Jogn in London
Editing by Nick Macfie and Lisa Shumaker)