U.S. Stocks Rise on Dovish Air from Bernanke

August 31st, 2012
in contributors

Closing the Week with Forexpros

by Forexpros Staff

U.S. stock prices rose on Friday after Fed Chairman Ben Bernanke said in a speech the Fed remains poised to simulate the economy if it doesn't improve soon.  At the forexpros-logoclose of U.S. trading, the Dow Jones Industrial Average rose 0.69%, the S&P 500 index was up 0.51% while the Nasdaq Composite index was up 0.60%.

Bernanke said in his speech at the Fed's annual symposium in Jackson Hole, Wyoming, that the Fed remains ready to intervene with stimulus measures, and even though the speech made no mention for more specific plans, stock rose on hopes for Fed action.

Follow up:

Monetary stimulus tools tend to weaken the dollar by design, pushing down interest rates and sending stock prices rising a side effect.  Inflationary pressures to tend to rise down the road as well.

Bernanke said in prepared remarks at his speech:

"The costs of nontraditional policies, when considered carefully, appear manageable, implying that we should not rule out the further use of such policies if economic conditions warrant.  Over the past five years, the Federal Reserve has acted to support economic growth and foster job creation, and it is important to achieve further progress, particularly in the labor market. Taking due account of the uncertainties and limits of its policy tools, the Federal Reserve will provide additional policy accommodation as needed to promote a stronger economic recovery and sustained improvement in labor market conditions in a context of price stability."

Elsewhere, U.S. factory orders rose 2.8% in July from June, outpacing market forecasts for a gain of 1.9%.

Also in the U.S. the final reading for the Thomson Reuters/University of Michigan consumer sentiment index came to 74.3 in August, up from analysts' calls for 73.6, the preliminary reading for August and also July's final reading.

Meanwhile, the Chicago purchasing managers' index (PMI) fell more than expected in July, data showed on Friday.

In a report, research group Kingsbury International said that the Chicago PMI fell to a seasonally adjusted 53.0, from 53.7 in the preceding month.

Analysts had expected the Chicago PMI to fall to 53.5 last month.

Leading Dow Jones Industrial Average performers included Intel, up 2.35%, American Express, up 2.05%, and Microsoft, up 1.72%.

The Dow Jones Industrial Average's worst performers included Merck, down 0.09%, AT&T, down 0.05%, and Pfizer, up 0.08%.

European indices, meanwhile, finished mixed.

After the close of European trade, the EURO STOXX 50 rose 1.54%, France's CAC 40 rose 1.00%, while Germany's DAX 30 finished up 1.09%. Meanwhile, in the U.K. the FTSE 100 fell 0.14%.


The dollar dropped against most major global currencies on Friday after Federal Reserve Chairman Ben Bernanke made his dovish comments.  In U.S. trading on Friday, EUR/USD was up 0.56% at 1.2576.

Monetary stimulus tools tend to weaken the dollar by design, pushing down interest rates and sending stock prices rising as well.  Inflationary pressures to tend to rise down the road as well.

The greenback was down against the pound, with GBP/USD trading up 0.60% at 1.5880.

The dollar was also down against the yen, with USD/JPY trading down 0.37% at 78.34, and down against the Swiss franc, with USD/CHF trading down 0.59% at 0.9546.

The dollar was down as well against its cousins in Canada, Australia and New Zealand, with USD/CAD down 0.64% at 0.9861, AUD/USD up 0.33% at 1.0323 and NZD/USD up 0.58% at 0.8032.

The dollar index, which tracks the performance of the greenback versus a basket of six other major currencies, was down 0.59% at 81.24.


As would be espected after Bernanke's remarks, Gold prices shot up in U.S. trading on Friday.

On the Comex division of the New York Mercantile Exchange, gold futures for October delivery were up 0.76% and trading at USD1,667.45 a troy ounce, up from a session low of USD1,646.45 and down from a high of USD1,671.55 a troy ounce early during the session.

Gold futures were likely to test support at USD1,646.45 a troy ounce, the earlier low, and resistance at USD1,677.45, the high from Aug. 27.

As the day progressed gold cooled its gains, though, as despite Bernanke's dovish comments, some investors were hoping for more definitive hints as to the direction of U.S. monetary policy.

Elsewhere on the Comex, silver for December delivery was up 1.69% and trading at USD30.962 a troy ounce, while copper for December delivery was down 0.34% and trading at USD3.435 a pound.

Crude oil futures followed gold up and the dollar down and shot up in U.S. trading Friday. On the New York Mercantile Exchange, light, sweet crude futures for delivery in October traded at USD96.77 a barrel on Friday, up 2.27%, off from a session high of USD96.91 and up from an earlier session low of USD94.52.

Further use of monetary stimulus tools hinted by Bernanke tend to weaken the dollar by design, pushing down interest rates and sending commodities prices rising, especially oil, which shoots up on hopes for sustained demand that comes from a jolted economy and also due to a weaker dollar, which makes the commodity a nicely-priced asset in the eyes of investors holding other currencies.

Improving factory orders and higher than expected consumer sentiment also buoyed oil.

On the ICE Futures Exchange, Brent oil futures for October delivery were up 0.16% and trading at USD114.50 a barrel, up USD17.73 from its U.S. counterpart.

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