Equities around the globe rallied on Friday while bond yields rose after sharply declining earlier in the week as USA employment data pointed to economic strength and Federal Reserve Chair Jerome Powell said the US central bank would be patient with monetary policy.
United States jobs growth increased at a higher rate than expected in December according to the latest data, as employers hired the most workers for 10 months and wages also rose.
"Despite this dovish tone, we are sceptical", Schenker said in a note.
Powell triggered an additional surge in the markets after he walked back the comment made in December that shook up investors and made him sound like his sole mission was to reduce the central bank's balance sheet.
Speaking to economists in Atlanta on January 4, Powell raised the possibility of a pause in the Fed's interest-rate hiking campaign and an adjustment in its balance sheet reduction plans in response to the downside risks that investors perceive to the economy. This caused investors to dump higher-yielding stocks, raising stock market volatility and driving investors into the safe-haven Treasurys.
Powell and his colleagues at the USA central bank are weighing conflicting signals on the US economy as they try to ensure that the Fed achieves its congressional mandate of low, stable inflation and full employment over the long term.
The S&P closed up 3.4 percent.
Since mid-December, investors have been expressing disagreement with Powell's assessment of the economy, saying the Fed had it all wrong and that the economy was weakening.
The two former central bank chairs also threw their support behind Powell and Fed independence following months of escalating criticism from Donald Trump.
Powell's appearance in Atlanta was his first since last month's rate increase and a public lashing from Trump, who according to sources asked aides about his power to fire the Fed chairman.
A third Fed president, Thomas Barkin of Richmond, said he is hearing more concerns about economic risks and trade. "Some years ago, we decided that rate policy was going to be the active policy tool and the balance sheet would be allowed to shrink gradually and predictably in the background", he said. Echoing that assertion, the central banker said at the Atlanta event that the Fed was ready to change course "significantly if necessary".
Traders said Powell's comments were perceived as dovish because he said the Fed had no preset path for policy and could be patient when it comes to future interest rate hikes. But it has been gradually reversing that stance over the past year, although the balance sheet still remains above $4 trillion.
Analysing the Fed statements, James Glassman, senior economist at JP Morgan said, "We have got very strong job news, the economy got lot of momentum to generate this kind of job news then why has the US Fed become cautious - it is because the inflation trends have been little more moderate".