US equities tick higher as investors digest Powell testimony

US equities rose slightly on Wednesday as markets digested further remarks from Federal Reserve chair Jay Powell on the pace and duration of higher interest rate rises to fight inflation.

The blue-chip S&P 500 advanced 0.1 per cent while the tech-heavy Nasdaq Composite gained 0.4 per cent. The moves came after Powell spoke to lawmakers in Washington, where he emphasised that no decision had been made on interest rates ahead of the central bank’s meeting later this month.

“I stress that no decision has been made on this,” he told lawmakers.

It was the second day before Congress for the Fed chair, who on Tuesday said that the US central bank may be prepared to reaccelerate the pace of interest rate increases if the economy and inflation do not cool. The S&P 500 on Tuesday dropped 1.5 per cent, its biggest daily loss in a fortnight.

Analysts said stocks were more resilient than expected after the Fed’s downbeat assessment. “I’ve been quite impressed and surprised that equities are holding on,” said Veronica Clark, an economist at Citigroup. “It could be a response to data we’ve had so far, as stronger activity should be positive for equities — but investors may be waiting for payrolls and consumer price index data. They could yet fall more.”

Successive data releases since February have shown an economy in the grips of sticky inflation despite a year-long campaign of higher interest rates. The latest was data released on Wednesday showing that private employers had added more jobs than expected in February — 242,000 according to ADP, versus the 200,000 expected.

The data comes ahead of the monthly non-farm payrolls and unemployment data on Friday, which will be very closely watched by investors.

The yield on the two-year Treasury note, which is highly sensitive to interest rate expectations, rose 0.05 percentage points to 5.06 per cent.

On Tuesday, the two-year yield rose above 5 per cent for the first time since 2007 as investors began to price in the possibility the Fed could raise rates by half a percentage point at its next meeting, instead of the quarter percentage point that had been anticipated.

The yield on the 10-year US note rose 0.01 percentage points to 3.98 per cent. Bond prices fall when yields rise.

Earlier in the day the dollar index, which measures the greenback against a basket of six peer currencies, touched its highest point since early December, before giving up gains to trade roughly flat.

European equities recouped most of their early losses by the afternoon. The region-wide Stoxx 600 closed up 0.1 per cent, while London’s FTSE 100 also rose 0.1 per cent and the CAC 40 in Paris lost 0.2 per cent. Germany’s Dax edged up 0.5 per cent after stronger-than-expected industrial production data.

The moves followed heavy declines in many of Asia’s biggest markets. The Hang Seng in Hong Kong dropped 2.4 per cent and South Korea’s Kospi lost 1.3 per cent.