Dow Futures Gain As Powell Unveils New Inflation Strategy; Jobless Claims Hold Over 1 Million

The dollar slipped to a one-week low against its currency peers, while global stocks peeled away from all-time highs, as investors parsed a key speech on U.S. monetary policy from Federal Reserve Chairman Jerome Powell that signaled an emphasis on employment over inflation.
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U.S. equity futures ticked higher Thursday, while global stocks peeled away from all-time highs, as investors parsed details of a key speech from Federal Reserve Chairman Jerome Powell that shifts the central bank's focus on inflation in favor of developments in the labor market.

Powell said the Fed will focus on an average rate of inflation of 2%, over a longer period of time, suggesting a tolerance for faster inflation as the economy recovers. The Fed said it wouldn't hesitate to act if inflation were to accelerate quickly, but said its focus would instead center on a 'broad and inclusive' job market.

"In seeking to achieve inflation that averages 2% over time, we are not tying ourselves to a particular mathematical formula that defines the average," Powell said. "Thus, our approach could be viewed as a flexible form of average inflation targeting"

Weekly jobless claims data showed that 1.06 million Americans filed for unemployment benefits in the week ending August 21, the second week in row that the headline figure topped the 1 million mark. Continuing claims were pegged at 14.535 million, down from 14.76 million in the previous week.

The second reading of second quarter US GDP was also revised to -31.7% from an initial estimate of -32.9%, the Commerce Department said.

The promise of a more dovish Fed would normally be positive for global stocks, and certainly for Wall Street, but overnight news of sanctions on certain members of the Chinese Communist Party by the State Department, as well as the blacklisting of 24 China-based firms the government said had played a role in "helping the Chinese military construct and militarize the internationally condemned artificial islands in the South China Sea" kept bullish sentiment in check.

Futures contracts tied to the Dow Jones Industrial Average suggest a 125 point gain for the benchmark while those linked to the S&P 500, which closed at a fresh all-time high of 3,478.73 points last night, are priced for a 12 point advance.

The U.S. dollar index, which tracks the greenback against a basket of six global currencies, slipped to a one-week low of 92.67, while benchmark 10-year U.S. Treasury bond yields were little-changed at 0.69%.

Much of the market's focus early focus was on the impact of Hurricane Laura, which made landfall earlier this morning in southwest Louisiana with wind speeds of up to 150 miles per hour and a storm surge that could affect areas in the region as far as 40 miles inward.

Global oil prices fell from five-month highs, but curiously weren't hugely impacted by both the shuttering of Gulf of Mexico drilling capacity, which remains almost entirely offline amid the path of Hurricane Laura, nor the bigger-than-expected 4.7 million barrel fall in domestic crude stocks reported by the Energy Department yesterday.

WTI contracts for October delivery, the new U.S. benchmark, traded 26 cents lower from their Tuesday close in New York at $45.45 per barrel in early European dealing while Brent contracts for October, the global benchmark, were seen 23 cents lower at $3.13 per barrel.

European stocks were modestly lower in the opening hours of trading Thursday, as global equities pulled back from all-time highs reached during yesterday's trading, when the MSCI World index of share prices in 49 different countries hit a record 584.30 points.

The Stoxx 600, the broadest measure of regional share prices, was marked 0.25% lower in Frankfurt, while Britain's FTSE 100 slipped 0.3% lower in the opening hours of trading in London.

Overnight in Asia, U.S.-China tensions offset more positive economic news from Beijing, which showed in industrial profits at state-owned firms rising at the fastest pace in two years, keeping gains for the MSCI ex-Japan index to just 0.17% heading into the final hours of trading.

Japan's Nikkei 225, meanwhile, closed 0.35% lower at 23,208.86 points.