Federal Reserve Chairman Jerome Powell said on Thursday there was no evidence the USA economy is overheating, and labor markets may still have room to improve as the central bank sticks with a gradual pace of interest rate increases.
The gap between short-dated USA borrowing costs and those in Germany was at its widest in over 20 years as the monetary policy outlooks by the Fed and European Central Bank for the two regions diverged. Analysts are watching to see if Powell adjusts his tone today.
US stocks fell on Thursday, dragging the Dow Jones Industrial Average down for the year, after President Donald Trump announced substantial steel and aluminum tariffs.
The core index, which Fed officials see as a better indicator of underlying price pressures because it excludes often-volatile costs for food and fuel, was up 0.3 percent in January - the most in a year - and 1.5 percent from January 2017, the same annual gain as the previous three months.
The MSCI All-Country World Index declined 0.5 percent.
Stocks fell sharply as investors anxious that President Donald Trump's planned tariffs on steel and aluminum will lead to retaliation from other countries.
The Fed has been trying to nudge inflation higher without risking a recession.
He said the Fed was in a "process of discovering" how low unemployment could fall before inflation took hold. February snapped a 10-month winning streak for the Dow.
A gauge of global equity performance tumbled and the dollar strengthened against the Canadian and Mexican currencies on Thursday after President Donald Trump said the United States would impose tariffs on steel and aluminum imports next week.
Powell, who took office on February 5, was tapped last November as the new Fed leader after President Donald Trump chose to against offering Yellen a second term.
Bond prices rose as demand jumped for safer investments, which pushed yields lower.
What else could help drive markets?
"Some of the headwinds the USA economy faced in previous years have turned into tailwinds", he added, noting recent fiscal policy shifts and a global economic recovery.
There were fresh signs of strength in the labor market, with initial jobless claims unexpectedly falling to the lowest level in nearly 50 years, while the Fed's favorite inflation gauge held steady at 1.5%.
"In the USA we have at least three rate hikes this year, but in the euro zone, there was some exaggeration about where inflation was heading so that is now being priced out and yields are moving to the downside", said DZ Bank strategist Daniel Lenz.
At 9:45 a.m. Eastern, investors are due to get Markit's February release on manufacturing, then ISM's manufacturing report for February is on tap for 10 a.m.
Economists expect that some people may also put the extra cash from lower taxes toward paying down debt or sock it away for a rainy day.
Rather, "the robust job market should continue to support growth in household incomes and consumer spending, solid economic growth among our trading partners should lead to further gains in USA exports, and upbeat business sentiment and strong sales growth will likely continue to boost business investment", he said.
February sales of US Mint American Eagle gold coins fell 80 per cent from the same month a year earlier, the slowest February sales in 11 years, while February silver coin sales fell to the lowest since 2008, government data showed on Wednesday. "It would raise the price of autos, look at the auto stocks".
Inc.'s stock (CRM) rose 4.7% after the software company's quarterly results beat expectations (http://www.marketwatch.com/story/salesforce-shares-wobbly-as-results-outlook-top-street-view-2018-02-28).
The Standard & Poor's 500 index dropped 36 points, or 1.3 percent, to 2,677.
What are other assets doing?