Stocks Higher on Fed Signals

US stock markets are starting the week on a strong footing following Fed chairman Powell’s dovish remarks on Friday. Speaking at the Fed’s Jackson Hole Symposium, Powell confirmed that the Fed will adjust policy when it meets next month. Powell noted that the time has come to adjust policy and while no specifics were mentioned, he did say that "The current level of our policy rate gives us ample room to respond to any risks we may face, including the risk of unwelcome further weakening in labor market conditions."

Aggressive Easing Expectations

This guidance has been interpreted as laying the groundwork for a series of easing moves as the Fed attempts to bolster the economy on the back of a string of weak labour market data. Indeed, traders are now weighing the chances of the Fed beginning with a more aggressive rate-cut of .5% in September. Incoming employment data ahead of the September FOMC will be seen as key to determining the level of action the Fed takes. If we see further weakness in labour market data, USD is likely to come under pressure as traders price in a greater likelihood of a larger hike. With focus now shifting to the extent to which the Fed is likely to ease over the remainder of the year, stocks are likely to stay well supported near-term.

Technical Views

S&P 500

The rally in the S&P has seen the market breaking back above the 5,502.19 level and back inside the bull channel. With momentum studies bullish, focus is on a fresh test of the 5,677.97 level and an eventual breakout to fresh highs. If we slip back below 5,502.19, 5,268.67 will be the next support to watch.