US close: Stocks record strong gains following dovish tone from Powell

Wall Street stocks closed considerably higher on Wednesday as hopes that China and the US would be able to reach a truce on trade at this week's G20 meeting were renewed and a dovish tone by Fed chairman Jerome Powell sent the Dow 600 points higher in late trading.

At the close, the Dow Jones was up 2.50% at 25,366.43, while the S&P 500 gained 2.30% to 2,743.78 and the Nasdaq was 2.95% firmer at 7,291.59.

US stocks recorded their third consecutive day of gains, as investors interpreted Powell's comments surrounding interest rates as being dovish.

Interest rates in the US are "just below" neutral, the President of the US Federal Reserve said.

Speaking at the Economic Club of New York, Jerome Powell said interest rates remained low by historical comparisons "and they remain just below the broad range of estimates of the level that would be neutral for the economy--that is, neither speeding up nor slowing down growth."

Powell appeared to a tow line that was slightly more dovish than that taken by his number two, Fed vice chairman Richard Clarida, just the day before and also appeared to emphasise 'data dependency', meaning that rate-setters would be watching incoming even more closely.

Philip Marey, senior US strategist at Rabobank noted: "If we read his words carefully there is actually less of a dovish shift than one would perceive at first sight."

However, in a research note sent to clients, Marey went on to say: "Our baseline scenario is that the yield curve inverts after the March hike and this will induce the Fed to take a pause. In their mind, an inversion would indicate that monetary policy is restrictive, and not that a recession is imminent as history teaches us."

"So we are likely to see history repeating itself with the Fed stopping the hiking cycle too late, inverting the yield curve, and causing –or at least contributing to– a recession."

Elsewhere, White House economic advisor Larry Kudlow, who revealed on Tuesday that US officials were having "a lot of communication" with the Chinese government at all levels ahead of the G20 meeting in Argentina this week, said Donald Trump had told advisers that "in his view, there is a good possibility that a deal can be made and that he is open to that".

However, China would need to do more for an agreement to be reached, with certain conditions needing to be met, Kudlow said.

Analyst Michael Hewson at CMC Markets said: "This would suggest that for all the optimism and Trump’s comments earlier this week that the best we can hope for is that any additional tariffs are delayed, and the current ones are left at their current levels."

"Nonetheless equity markets have chosen to focus on the positive with Asia markets also pushing higher ahead of the key meeting on Saturday with Presidents Trump and Xi."

At 2135 GMT, the USD was 0.64% softer against the GBP at 0.7796, while Brent was 2.67% lower at $58.60 per barrel and West Texas Intermediate was 2.62% weaker at $50.21 a barrel.

Also on oil, US crude oil stockpiles jumped last week, easily surpassing analysts' forecasts.

Over the seven days ending on 23 November, commercial crude oil inventories in the States grew by 3.6m barrels from the week before (consensus: 769,000 barrels), to reach 450.5m barrels, the Energy Information Administration said, and were about 7% above their five-year average.

In parallel, gasoline inventories slipped by 800,000 barrels to stand roughly 5% above their five-year average while those of distillates rose by 2.6m barrels.

In corporate news, Tiffany's slumped 11.82% during the day after the luxury jeweller's third-quarter sales missed analysts' expectations.

Consumer foods group JM Smucker had slipped 7.24% at the close after its quarterly profit and sales missed forecasts and the company cut its full-year outlook.

On the other hand, Burlington Stores shot up 12.76% as its third-quarter earnings and revenue topped analysts' forecasts, while Salesforce.com rallied 10.25% after posting better-than-expected third-quarter results late on Tuesday.

Boeing closed 4.88% higher, leading the Dow's gainers, and Apple closed 0.10% higher - holding on to its title of the most valuable company in the US after Microsoft took the title earlier in the day for the first time in eight years.

On the data front, America's shortfall on trade in goods with the rest of the world widened last month as export growth slipped.

The US deficit on its foreign trade in goods increased by 1.3% month-on-month in October to reach $77.2bn, according to the Department of Commerce.

Exports shrank by 0.5% versus the previous month to reach $140.5bn while imports were little changed, edging up by just $200m to $217.8bn.

Economists had pencilled-in a deficit of $77bn.

In other news from the Department of Commerce, America's economy slowed a tad more quickly than expected last quarter but in a potentially positive development, data on businesses' outlays on equipment was revised sharply higher.

America's gross domestic product expanded at a quarterly annualised pace of 3.5% over the three months to September, which was unchanged from the preliminary estimate, although a tenth of a percentage point lower than economists had forecast.

However, the underlying details were "favourable", said Ian Shepherdson at Pantheon Macroeconomics, pointing to upwardly revised growth of 3.5% in business fixed investment.

Elsewhere, sales of new US single-family homes tumbled in October, according to data from the Commerce Department.

New home sales declined by 8.9% to a seasonally adjusted annual rate of 544,000, below expectations for a level of 575,000 and compared to a revised level of 597,000 in September.

Sales were down 12% from October 2017's level of 618,000.

Meanwhile, the median price of a new home was $309,700 last month compared to $321,300 in September.

The Richmond Fed manufacturing index revealed the service sector "grew slightly in November". However, the survey's results were a bit weaker than expected. The index came in at 14, just shy of the 15 expected by economists and lower than the prior month at 15.