Wall Street stocks hit highs ahead of Jackson Hole

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Wall Street stocks hit record highs while government debt prices fell on Wednesday, as investors predicted central bankers would maintain a dovish tone at a closely watched meeting later this week.

The blue-chip S&P 500 and tech-focused Nasdaq Composite indices closed at highs, each up about 0.2 per cent. Growth-sensitive stocks such as financials, energy and industrials led the gains.

The S&P 500 has now set a high 51 times this year, according to Howard Silverblatt at S&P Dow Jones Indices, helped by the Federal Reserve’s $120bn-a-month asset purchase programme which has offset concerns about the effect of the coronavirus pandemic and pushed investors towards stocks in search of returns.

Investors were briefly spooked last week when minutes from a recent meeting of US central bank officials showed they had accelerated discussions on when to wind down stimulus measures, but stock markets have bounced back in recent days.

Prices on US government bonds — a haven asset — fell, pushing yields higher. The yield on the US benchmark 10-year bond rose 0.05 percentage points, to 1.34 per cent.

Markets followed a similar pattern in Europe, with government bonds selling off while most main stock indices were positive or flat. Yields on the 10-year German Bund rose 0.05 percentage points to -0.42 per cent, and the equivalent UK gilt rose 0.06 percentage points to 0.60 per cent.

London’s FTSE 100 stock index rose 0.3 per cent but lagged behind the mid-cap FTSE 250 index, which climbed 0.4 per cent to an all-time high. The region-wide Stoxx 600 closed flat, with Frankfurt’s Xetra Dax down 0.3 per cent and the CAC 40 in Paris up 0.2 per cent. Trading activity was well below average levels across national bourses, according to Bloomberg data.

Investors have been cautious about making big bets ahead of this week’s virtual Jackson Hole meeting of central bankers, despite analysts becoming increasingly confident in recent days that Jay Powell, Fed chair, will not provide any further shocks when he speaks on Friday.

Jorge Garayo, global head of inflation strategy at Société Générale, predicted “it’s more likely we get anything exciting at the next [Federal Open Market Committee] meeting” in September. 

Aaron Anderson, senior vice-president of research at money management firm Fisher Investments, said Powell faced too much uncertainty to signal any imminent policy changes. “Economic data has been mixed, the Delta variant looms, and President [Joe] Biden’s decision on his reappointment could be days away,” he said.

Key to the decision on when central banks will begin tapering their support is their outlook on how long term inflation will be. “My view is that we are in a transitory high inflation period,” said Garayo. “But I don’t rule out high inflation for a bit longer than we thought.” 

Oil prices continued to climb after being buoyed by encouraging news about Covid-19 infection rates in China earlier in the week. Brent crude, the global benchmark for oil, rose 1.5 per cent to $72.14 per barrel, bringing its gains since Monday to more than 10 per cent. US marker West Texas Intermediate rose 1 per cent to $68.24 per barrel. Gold fell 0.7 per cent to $1,790 per troy ounce.

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