U.S. stocks moved in and out of positive territory Thursday, while the dollar built on gains against its global peers, as investors sifted through an historic rate decision from the European Central and a policy speech from Fed Chairman Jerome Powell.
The ECB delivered its biggest rate hike on record early Thursday, lifting its key refinancing rate by 75 basis points to 1.5% while warning that "very high energy prices are reducing the purchasing power of people’s incomes" and will likely lead to a "substantial slowdown" in economic growth.
The ECB, which is battling both a looming recession linked in part to Russia's war on Ukraine and the region's escalating energy crisis, as well as record high inflation, also lifted its lending and deposit rates by 75 basis points as part of today's decision.
Powell told Cato Institute CEO Peter Goettler that the Fed was "strongly committed" to its inflation fight ahead of an anticipated rate hike on September 21, suggesting the central bank's policy path between now and the end of the year remains unchanged.
"We need to act now, forthrightly, strongly as we have been doing, and we need to keep at it until the job is done," Powell said. "The Fed has and accepts responsibility for price stability."
The CME Group's FedWatch is pricing in an 86% chance of a 75 basis point rate hike, the third in succession, as investors look for a so-called 'terminal' Fed Funds rate that is north of 4% before Powell signals a paused in the monetary tightening.
Stocks had been hoping to build on yesterday's solid rally on Wall Street, which snapped the longest daily losing streak for the Nasdaq since 2016, amid a pullback in the dollar and bets on a so-called 'soft landing' for the U.S. economy.
The hawkish tone from both Powell and Lagarde was marginally offset by comments from Reserve Bank of Australia Governor Philip Lowe, who argued "case for a slower pace of increase in interest rates becomes stronger as the level of the cash rate rises" following a move earlier this week to boost the country's key lending rate to a seven-year high of 3.25%
But that couldn't blunt gains for the dollar index, which tracks the greenback against a basket of six global currencies, as it rose 0.14% on the session to 110.004 while benchmark 2-year Treasury bond yields jumped 7 basis points to 3.492%.
The stronger dollar failed to offset upward pressure on oil prices, with the ongoing energy standoff between the European Union, which has proposed price caps for Russian oil exports, and Vladimir Putin providing further support.
WTI crude futures for October delivery were marked $2.13 higher on the session at $84.07 per barrel while Brent contacts for November, the global benchmark, added $1.68 to trade at $89.67 per barrel.
On Wall Street, the S&P 500 was marked 15 points higher in early-afternoon trading while the Dow Jones Industrial Average gained 121 points. The tech-focused Nasdaq was up[ 20 points.
In overseas markets, Europe's Stoxx 600 benchmark closed 0.5% higher in Frankfurt after the ECB rate decision, while the region-wide MSCI ex-Japan index rode last night's rally on Wall Street to gain 0.31% from yesterday's seven-month lows.
Tesla (TSLA) shares were typically active, rising 0.9% after it notched a big jump in China sales and exports last month as the carmakers Shanghai gigafactory returned to full pace following shutdowns linked to Covid restrictions and a scheduled upgrade.
GameStop (GME) shares were up 4.2% after the video game retailer unveiled a new partnership with crypto exchange group FTX that offset a sixth consecutive quarterly loss.
