By April Joyner
NEWYORK (Reuters) – A broad index of world stock markets edged higher on Wednesday while the U.S. dollar fell as comments from Federal Reserve Chairman Jerome Powell bolstered expectations for an interest rate cut from the U.S. central bank this month.
MSCI’s broadest index of world stocks <.MIWD00000PUS> climbed 0.27%, with U.S. equities touching record highs following the release of prepared remarks for Powell’s testimony before U.S. House of Representatives Financial Services Committee. The U.S. benchmark S&P 500 index <.SPX> briefly hit the 3,000 mark for the first time ever.
Powell said the Fed was ready to “act as appropriate” to sustain a decade-long U.S. economic expansion and pointed to economic risks including persistently weak inflation, slowing global growth and a downturn in business investment.
After his remarks, interest rate futures appeared to price in greater odds of an aggressive rate cut this month. Expectations for a 50-basis-point cut, which had nearly been snuffed out following stronger-than-expected U.S. employment data on Friday, jumped to 23.5%, according to CME Group’s FedWatch tool.
Yields on short-dated U.S. Treasuries, which had ticked higher in recent sessions after stronger-than-expected employment data on Friday, fell on Powell’s remarks. The two-year Treasury yield, a proxy for market sentiment about interest rate policy, was last 7.5 basis points lower at 1.8297%.
The dollar index <.DXY>, tracking the greenback against six major currencies, dropped 0.29%. Shortly following the release of Powell’s remarks, it hit session lows against the yen and euro.
The yen was last 0.28% stronger against the dollar at 108.53, while the euro rose 0.31% against the greenback to $1.1241.
“Chairman Powell did not do anything to push back against the market expectation of an upcoming rate cut,” said Keith Lerner, chief market strategist at SunTrust Advisory Services in Atlanta. “So we’ve seen a little bit of a rally. Our take on it is that the path of least resistance over the next 12 months (for U.S. stocks) remains higher.”
“The easing of the dollar is a good thing overall,” he added. “That’s a positive for international markets and for financial conditions.”
The Dow Jones Industrial Average <.DJI> rose 43.35 points, or 0.16%, to 26,826.84, the S&P 500 <.SPX> gained 7.23 points, or 0.24%, to 2,986.86 and the Nasdaq Composite <.IXIC> added 28.44 points, or 0.35%, to 8,170.16.
In Europe, the STOXX 600 <.STOXX> briefly turned positive following Powell’s comments but was last down 0.15%.
Benchmark 10-year notes <US10YT=RR> last rose 4/32 in price to yield 2.0439%, from 2.056% late on Tuesday.
(For a graphic on ‘Bond yields take the plunge’, click here https://tmsnrt.rs/2G4F7jg)
In commodity markets, oil prices rose as U.S. crude inventories shrank more than expected and as major producers evacuated rigs in the Gulf of Mexico before a storm.
Brent crude futures were up $1.92, or 3%, to $66.08 a barrel, while U.S. West Texas Intermediate crude futures climbed $1.75, also 3%, to $59.58 a barrel.
Spot gold added 0.6% to $1,405.84 an ounce.
(Additional reporting by Kate Duguid, Gertrude Chavez-Dreyfuss, Laila Kearney and Stephanie Kelly in New York and Marc Jones in London; Editing by Bernadette Baum)