Major indices on Wall Street opened higher on Thursday, after Federal Reserve Governor Christopher Waller said he may support keeping interest rates unchanged this month if data confirms continued decline in price pressures.
Waller's statements contributed to traders reducing their bets on raising interest rates, at a time when the state of pessimism that had clouded the markets following the recent military tensions between the United States and Iran began to subside.
Waller said, during the Reuters Next Newsmaker event in Washington, that his decision on the appropriate stance for monetary policy “will be greatly influenced by what we know about the inflation rate in August.”
He added: “If progress towards our goal of reaching 2 percent continues, I am ready to support keeping the interest rate at its current level.”
But he pointed out that raising borrowing costs may become necessary if inflation data show continued price pressures. Traders still expect about a 48 percent chance of raising interest rates this month, according to the CME Fed Watch tool.
“I expect September to be a very volatile month,” said Kim Forrest, chief investment officer at Bouquet Capital Partners. “It is a season characterized by many fluctuations.” She added that the volatility ahead of the midterm elections, in addition to the possibility of a decrease in liquidity in September, “creates conditions for investors to act with excessive caution, and for the market to witness sharp movements up and down.”
Investors, looking for positive factors, are looking forward to the jobs data scheduled to be released on Friday, but some of them warned against over-reliance on the report, in light of Federal Reserve Chairman Kevin Warsh confirming that controlling inflation remains his top priority.
The continuation of the conflict in the Middle East may also further complicate interest rate expectations, by escalating inflationary pressures. Brent crude futures rose 0.49 percent on Thursday, marking the fourth consecutive session of gains.
“Oil prices have regained some of their geopolitical risk premium, adding a potential source of inflationary pressure at a time when markets are already debating whether US interest rates need to rise,” said Daniela Hathorne, senior market analyst at Capital.com.
By 9:34 a.m. EST, the Dow Jones Industrial Average rose 394.74 points, or 0.74 percent, to 53,456.69 points, the Standard & Poor's 500 Index rose 41.29 points, or 0.54 percent, to 7,707.89 points, while the Nasdaq Composite Index rose 160.20 points. Or 0.61 percent, to 26,378.03 points.
Broadcom's shares fell 5.26 percent after its fourth-quarter revenue expectations fell short of Wall Street's optimistic expectations, an indication of the challenges faced by leading companies in the field of developing artificial intelligence technologies to maintain the strong momentum witnessed by the sector's shares.
On the other hand, Snowflake shares jumped by 25.17 percent after it expected to achieve strong annual revenues, which boosted morale in the software sector. Service Now shares rose by 5.43 percent, while Salesforce and Adobe shares increased by 3.14 percent and 3.62 percent, respectively.
With increasing geopolitical risks clouding the outlook, and the absence of clear catalysts on the corporate earnings schedule, investors may lack sufficient reasons to push stock prices to significant increases this month.
According to eToro analyst Jacob Rochlitz, September witnessed nine of the 40 largest declines in the history of the Standard & Poor's 500 index.
Gainers outnumbered losers by a ratio of 3.33 to one on the New York Stock Exchange, and by a ratio of 2.36 to one on the Nasdaq Stock Exchange.
The Standard & Poor's 500 index recorded nine new record highs in 52 weeks, compared to a new record low, while the Nasdaq Composite index recorded 29 new record highs and 28 new record lows.
US services sector activity rebounded in August, driven by strong demand that pushed new orders to their highest level in three and a half years, and also led to a rise in input prices, in an indication that inflation may continue at high levels, which may prompt the Federal Reserve to raise interest rates before the end of the year.
The Institute for Supply Management said on Thursday that the purchasing managers' index for non-manufacturing sectors rose to 55.4 last month, from 54.1 in July. A reading above 50 indicates growth in activity in the services sector, which represents more than two-thirds of US economic activity.
Economists polled by Reuters had expected the index to rise to 54.2. The current level of the index is consistent with strong economic growth during the third quarter.
The index of new orders received by service companies, according to the survey, rose to 60.9, its highest level since February 2023, compared to 57.2 in July.
This rise in orders coincides with strong domestic demand, driven in part by a boom in AI-related spending.
With demand continuing without clear signs of decline, supply chains remained under great pressure last month. The supplier deliveries index fell to 51.3, from 52.8 in July.
A reading above 50 indicates a slowdown in deliveries. The index recorded a slowdown for the twenty-first month in a row, which contributed to an increase in input prices.
Supplier deliveries were initially affected by customs duties on imports, before receiving additional pressure recently due to the war, which has entered its seventh month.
The index of input prices paid by companies, according to the survey, rose to 72.6, from 70.3 in July, indicating that inflation is likely to remain above the Federal Reserve's 2 percent target for some time.
Federal Reserve Chairman Kevin Warsh said last week that the central bank “will face challenges” if policymakers do not gain the necessary confidence that inflation is heading toward the 2 percent target.
Financial markets, according to the CME Group's Fed Watch tool, expect a probability of about 64 percent that the Federal Reserve will raise the benchmark overnight interest rate by 25 basis points at its meeting scheduled for September 15 and 16. The interest rate currently ranges between 3.50 percent and 3.75 percent.
Despite strong orders, employment in the services sector remained weak last month.
Economists say that companies are still reluctant to increase the number of their employees, in light of the uncertainty regarding economic policies. The survey's employment sub-index saw little change, standing at 47.8, indicating a possible decline in non-farm payrolls in August.
A poll of economists conducted by Reuters expects that the Ministry of Labor will announce, on Friday, an increase of 56,000 jobs last month, after a sudden decline of 23,000 jobs in July. This recovery partly reflects the return of education sector jobs in local governments.
However, some economists are preparing to record a decline in jobs, for the second month in a row, after the temporary protection system recently ended for hundreds of thousands of Haitians, affecting their work permits.
The Dutch Central Bank announced the transfer of about 86 metric tons of gold from the United States and Canada to London, in a step it described as part of strengthening preparedness to confront crises in light of the escalation of political unrest globally.
The Dutch Central Bank explained that the transfer took place between March and August, and included gold located in vaults in New York City and the Canadian capital, Ottawa.
Before the operation, New York hosted 31.3 percent of Dutch gold reserves, while Ottawa held 19.7 percent. After redistribution, the share of each of the two cities decreased to 18.5 percent.
The Dutch Central Bank, known as DNB, owns about 612.4 tons of gold, worth 72.2 billion euros, or about 83.6 billion dollars, by the end of 2025.
Bank Governor Olaf Slieben said that the redistribution of gold has improved its tradability, adding that the bank expects that it will not have to use its gold reserves, but at the same time it needs to strengthen its ability to withstand and prepare to face crises.
London is a more ready centre
The operation included physically transporting more than 27 tons of gold from the United States and Canada to the Dutch Bank's heavily guarded vaults at a military base near the city of Zeist in central Netherlands, without the bank revealing the details of how the bullion was transported across the Atlantic Ocean.
In return, an almost identical amount of gold was transferred from Zest's vaults to London.
As for the remaining amount of the repositioning process, it was dealt with by selling about 59 tons of gold in New York, and using the proceeds of the sale to buy a similar amount in London.
The choice of London is based on the tradability of the gold stored at the Bank of England according to modern international standards. The Dutch Bank considers it one of the easiest types of gold to trade globally, and therefore the most capable of providing liquidity quickly in the event of a crisis.
The bank explained that the gold stored in New York and Ottawa cannot be used with the same speed and directness in such circumstances.
The move reflects the increasing importance of the location of gold storage, in addition to the size of the reserves themselves. Rapid access to assets and liquidity in times of crises has become an important factor in managing official reserves, in light of the rising geopolitical risks and uncertainty in the global financial system.
