Marketmind: Powell clears the decks

Intended or not, investors clearly read Wednesday's keynote speech by the Federal Reserve chair as a green light for a yearend relief rally in beaten down assets.

And with China now expected to announce in the coming days an easing of its COVID-19 quarantine protocols and a reduction in mass testing, the optimism sustained through Thursday.

On the face of it, Fed chief Jerome Powell merely confirmed what most had already assumed - that the Fed would downshift the size of its interest rate rises to half a point next month.

But stocks soared and the dollar skidded on a number of nuances, not least Powell's pointed assertion that policymakers did not want to "overtighten" policy - even if his reasoning was they wanted to keep rates higher for longer at a sustainable level.

The upshot is that markets have dragged their implied peak Fed rate next year back below 5% and continue to price up to half a point of cuts by the end of 2023.

The S&P500 surged more than 3% - its second biggest one-day gain in more than two years - and futures held the bulk of those gains on Thursday as bourses around the world rose in the slipstream. The dollar has fallen to its lowest since early August, with 10-year U.S. Treasury yields hitting their lowest in almost two months.

The policy tilt, assuming it was meant to be one, came after a mixed bag of U.S. economic soundings - still tight labor markets as seen through job openings data and an upward GDP revision, but softening private payroll creation and Chicago business sentiment.

Core PCE inflation numbers are due later and another barrage of Fed speakers to hold Powell's take up to the light.

But the overall market reaction to both Powell this week and China's developments over the past month probably reveal more about market positioning and the seasonal urge to front load bets on a less brutal 2023.

UBS Chairman Colm Kelleher said on Wednesday that cash levels in the Swiss bank's wealth management business were at their highest levels since 2008.

And entering the final month of the year, the prospect of a relatively benign Fed decision on Dec. 14 sidesteps what might otherwise have been a big dampener on any so-called 'Santa rally.'

Elsewhere, Elon Musk said he expects a wireless brain chip developed by his company Neuralink to begin human clinical trials in six months, after the company missed earlier timelines set by him.

And, Sam Bankman-Fried, the founder of now-bankrupt crypto exchange FTX, attempted to distance himself from suggestions of fraud in his first public appearance since his company's collapse stunned the crypto world.

Key developments that may provide direction to U.S. markets later on Thursday:

* U.S. Oct. Core PCE inflation reading, weekly jobless claims, and final Nov. business survey

* U.S. Federal Reserve Board Governor Michelle Bowman, Federal Reserve Vice Chair for Supervision Michael Barr, Minneapolis Fed President Neel Kashkari, Dallas Fed chief Lorie Logan all speak

* European Central Bank chief economist Philip Lane speaks in Florence

* U.S. corporate earnings: Dollar General, Korger, Ulta Beauty

Graphic: Implied Fed Terminal Rate https://fingfx.thomsonreuters.com/gfx/mkt/egpbykgyovq/One.PNG

Graphic: S&P 500 stocks https://fingfx.thomsonreuters.com/gfx/mkt/lgvdkwezjpo/SPX_by_marketcap.png

Graphic: ADP https://www.reuters.com/graphics/USA-STOCKS/lbpggndylpq/adp.png

Graphic: JOLTS https://www.reuters.com/graphics/USA-STOCKS/dwpkdrnyqvm/jolts.png

(By Mike Dolan, editing by Kirsten Donovan [email protected] Twitter: @reutersMikeD)