04.12.2023 – The bulls are celebrating: Jerome Powell has single-handedly created a small Advent bull market. After his fireside chat at Spelman College in Atlanta, the optimists seized the opportunity. Shares, gold, Bitcoin – everything took off.
After the Federal Reserve’s verbal intervention, the dollar slipped and gold hit an all-time high before profit-taking set in. Here is the four-hour chart.
Source: Bernstein Bank GmbH
Bitcoin climbed to 40,000 dollars for the first time since May 2022, Ether above 2200 dollars. Increased risk appetite everywhere: the Nasdaq gained an incredible 11% in November, while the S&P 500 climbed 9%.
The bulls are also celebrating in Germany: The DAX has risen by around 12 percent since its low in October, gaining almost 10 percent in November alone. The leading index has just completed its fifth week of gains – the longest winning streak of 2023. The record high of 16,529 points is now within reach.
Interest rate hope from the Fed
Powell played both sides again on Friday – but the market believes that the tightening is coming to an end. The Fed Chairman had this statement for the hawks: “It would be premature to conclude with confidence that we have achieved a sufficiently restrictive stance, or to speculate on when policy might ease. We are prepared to tighten policy further if it becomes appropriate to do so.”
But the doves also got their money’s worth: “The strong actions we have taken have moved our policy rate well into restrictive territory, meaning that tight monetary policy is putting downward pressure on economic activity and inflation. Monetary policy is thought to affect economic conditions with a lag, and the full effects of our tightening have probably not yet been felt.”
The take-home message for the market: it could be that interest rates are stifling the economy; and as inflation is falling, we should at least wait to see the effect of the steps taken so far. If there is not even more to come, interest rate cuts for example. In his answers to questions from students, Powell certainly sounded optimistic: he sees the USA well on the way to the inflation target of 2 percent and did not rule out a soft landing.
Interest rate cut ahead?
In any case, hardly anyone now believes that the Fed will raise interest rates again on December 12 and 13. And not only that: most even see interest rate cuts. According to the financial blog “ZeroHedge”, March rate cut odds have just risen to an all-time high of 80 percent – before Powell’s speech, they would have been just 10 percent.
But keep an eye on the real-time news – surprising economic data can quickly turn things around. Ditto an escalation of the wars in Ukraine and Gaza. Or the Fed itself, which could get spooked by the rally. Whether long or short – Bernstein Bank wishes you successful trades and investments!
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