European stocks push higher as Fed chair Powell hints at stimulus tapering

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Federal Reserve chairman Jerome Powell
Jerome Powell said the Federal Reserve could begin to slow its bond-buying stimulus programme later this year. Photo: Win McNamee/Getty Images

European stock markets bounced from red to green on Friday afternoon after Federal Reserve chair Jerome Powell signalled that the bank could start tapering its stimulus this year.

The FTSE 100 (^FTSE) was closed 0.3%, with miners on the front foot and energy and basic resources leading the gainers, while tech stocks were in decline. The French CAC (^FCHI) rose 0.2% and the DAX (^GDAXI) was 0.3% higher in Germany.

At the Jackson Hole economic symposium, Powell said the Fed could begin to slow its bond-buying stimulus programme later this year.

"We have said that we would continue our asset purchases at the current pace until we see substantial further progress toward our maximum employment and price stability goals, measured since last December, when we first articulated this guidance," he said.

"My view is that the “substantial further progress” test has been met for inflation. There has also been clear progress toward maximum employment.

"At the [Federal Open Market Committee]’s recent July meeting, I was of the view, as were most participants, that if the economy evolved broadly as anticipated, it could be appropriate to start reducing the pace of asset purchases this year."

However, Powell warned that the Fed needs to be careful not to tighten its policy before enough Americans can return to work. Currently an extra 6 million US citizens remain out of work, compared with pre-pandemic levels. Hiring firms have been scrambling to find workers, with a record 10.1 million job openings recorded in June.

“Today, with substantial slack remaining in the labour market and the pandemic continuing, such a mistake could be particularly harmful,” Powell said.

The Fed will receive another employment report, covering the month of August, next Friday. That will be the last employment print before the central bank’s next policy-setting announcement scheduled for 22 September.

Powell also emphasised that the spread of the Delta COVID variant presents a “near-term risk” to economic growth, but said he remained optimistic about the economic recovery.

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Across the pond, the S&P 500 (^GSPC) rose 0.8% and the tech-heavy Nasdaq (^IXIC) climbed 1%. The Dow Jones (^DJI) edged 0.6% higher at the time of the Europe close.

In the year to date, the major US indices remain strongly ahead, with the Dow Jones up 15%, the S&P 500 up 19% and the Nasdaq 16% higher.

The dollar dropped after Powell said rising inflation is to be transitory but provided no exact tapering timeline. The Bloomberg Dollar Spot Index fell as much as 0.4% following Powell's comments.

Asian stock markets were mixed on Friday following a decline on Wall Street after attacks on Afghan civilians and US troops at Kabul airport on Thursday.

In Japan, the Nikkei (^N225) fell almost 0.4% while the Hang Seng (^HSI) also dropped 0.4% and the Shanghai Composite (000001.SS) rose 0.6%.

Benchmarks in Malaysia, Thailand and Indonesia rose while Singapore and Sydney slipped.

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