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Wall Street opens in the green as Powell assuages inflation fears

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The main indices on Wall Street started Wednesday’s session on the front foot after Fed chair Jerome Powell’s testimony appeared unphased by the recent rise in inflation, possibly soothing nerves among traders.

Shortly after the opening bell, the Dow Jones Industrial Average was up 0.41% at 35,030 while the S&P 500 climbed 0.52% to 4,391 and the Nasdaq rose 0.77% to 14,790.

“Chair Powell’s Testimony, ahead of his appearance at the House later today, breaks no new ground.  Mr. Powell repeated his view that inflation “will likely remain elevated in coming months before moderating” as “bottlenecks unwind” and unfavourable base effects fade. The Chair did not directly allude to his previously-expressed view that rising labour supply in the fall will prevent the reopening inflation spike from becoming embedded, though he did note that labour participation right now is little changed from a year ago, and is still “low”, said analysts at Pantheon Macroeconomics.

“On the policy front, Mr. Powell said that the “substantial progress” needed to trigger tapering is “still a ways off” but that the debate will continue in coming meetings.  In short, no change from the June FOMC meeting, and no hint that the latest round of inflation data are threatening Mr. Powell’s core view. Still dovish”, they added.

8:10am: Wall Street to start mostly higher

Led by the tech-powered Nasdaq, the main Wall Street indices are pointing towards a positive start on Wednesday morning, according to the futures market, though the Dow Jones Industrial Average is predicted to open fairly flat.

Investment has continued to flow heavily into US stocks, strategists at Citi noted earlier this morning, with US$6.4bn of new positions added to the S&P 500 (SPX) and US$2.1bn to the Nasdaq 100 (NDX) over the week.

“SPX futures positioning is one sided and very extended, but profit levels remain small. For NDX, positioning is the most extended ever seen and the highest since Sep 20.

“Risk is increasingly skewed to the downside with NDX long holders on average sitting on 5% of profit.

“The reverse seems to be taking place in Europe, with increasing new short positioning across EuroStoxx, DAX and FTSE. Net positioning has fallen over the week in Europe, indicating a higher degree of investor caution.”

Meanwhile, bank earnings season continues to roll on with figures due out from Bank of America Corp (NYSE:BAC), Wells Fargo & Co (NYSE:WFC) and Citigroup Inc (NYSE:C).

Four things to watch for on Wednesday:

  • Aside from bank earnings, there will also be numbers from Delta Air Lines Inc (NYSE:DAL), drug delivery specialist Oramed Pharmaceuticals Inc (NASDAQ:ORMP) and digital streaming firm Cinedigm Corp (NASDAQ:CIDM)
  • Shares in investment manager BlackRock Inc (NYSE:BLK) may draw attention after the firm reported profits and revenues that beat expectations
  • Investors will also be keeping an eye on upcoming testimony from Fed chair Jerome Powell to Congress later today
  • On the macro front, US PPI data may be of interest following yesterday’s inflation figures alongside more mortgage application data

Story by ProactiveInvestors


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