A look at the day ahead in the US and global markets by Mike Dolan
If Fed boss Jerome Powell had any idea of June’s US inflation numbers when he spoke to Congress this week, today’s critical report doesn’t look like it will prove a game changer.
But given the resilience of US and global equities at record highs and the relatively serene government bond and interest rate markets, that doesn’t seem like a major problem for global markets at the moment.
As usual, the latest report on American consumer prices attracted all the attention on Thursday. And an encouraging downward trend in annual inflation is expected to be accompanied by ‘core’ interest rates still stuck at a strong 3.4%.
Powell remained cautious during the second leg of his testimony in Congress on Wednesday. And yet futures remain committed to two quarter-point Fed rate cuts this year, while 10-year Treasuries have easily absorbed the latest selling of new paper.
Fueled by another gain for the artificial intelligence indicators – this time spurred by another earnings beat from Taiwan’s TSMC – the SP500 rose 1% on Wednesday to jump to 5,600 for the first time, marking the first time this year that it has recorded seven consecutive daily made profits.
TSMC hit a record high on Thursday, cementing its position as Asia’s most valuable company and surpassing a trillion-dollar valuation for the first time.
Micron Technology (NASDAQ:) rose 4%, Nvidia (NASDAQ:) climbed 2.7% and Advanced Micro Devices (NASDAQ:) rose 3.9%. Major banks kick off the US second quarter earnings season in earnest on Friday.
Stock markets in Europe and Asia rallied in the slipstream, with even China’s beaten-down CSI300 making a rare break ahead of next week’s government plenum.
The Communist Party leadership meeting is expected to outline efforts to promote advanced manufacturing, overhaul the tax system to curb debt risks, manage a massive real estate crisis and boost domestic consumption. Quite a task, no doubt.
But the trigger for Thursday’s rise was more likely a move by the China Securities Regulatory Commission to further restrict short selling.
With the dollar trailing again, much of the action took place early Thursday in the currency markets.
Buoyed by the expected landslide in last week’s British Labor Party elections and data showing the economy accelerated more than expected in May, sterling jumped to its highest level in four months.
The 0.4% rise in GDP reinforced Wednesday’s speech by Huw Pill, chief economist at the Bank of England, seen as a decisive vote on the BoE’s split monetary policy board.
Pill tempered hopes for a UK rate cut in the summer by stressing that services inflation and wage growth were showing “uncomfortable strength”, and money markets are now pricing in less than a 50% chance of a first rate cut from the BoE next month.
But the euro also rose to its best level in more than a month as French markets calmed further following the indecisive election outcome there last weekend.
France’s benchmark stock index rose 0.6%, while France’s 10-year sovereign debt premium versus Germany fell for the first time in almost a month to 62 basis points.
The head of the Bank of France, François Villeroy de Galhau, said on Thursday he hoped the country’s political stalemate would be resolved by September, when the parliament of the eurozone’s second-largest economy will discuss the country’s budget must vote.
Elsewhere, the focus has been on erratic US politics, with more pressure on President Joe Biden to step aside ahead of the race for the White House in November.
Democratic party heavyweights Nancy Pelosi and George Clooney, who could potentially influence other Democratic lawmakers and financial donors, and two Senate Democrats are sowing more doubt about Biden’s fitness to run.
Senate Majority Leader Chuck Schumer, meanwhile, has privately indicated he is open to a Democratic nominee other than Biden, according to Axios. However, Schumer reiterated his support for Biden in a statement following the Axios report.
With Republican challenger Donald Trump now far ahead in the betting markets to win the race, the relative calm in US markets has been notable.
Even the currency markets where Trump’s tariffs and immigration promises could be hit hardest appeared stable. The Mexican peso, the Brazilian real and the Brazilian real were firmer on Thursday – the first two reaching their best levels in a month.
Oil prices were stable, but annual crude oil gains fell below 10% for the first time in a month. Global oil demand growth will slow to just under a million barrels per day this year and next, the International Energy Agency said, while Chinese consumption shrank in the second quarter.
Key developments that should give more direction to US markets later on Thursday:
* June US Consumer Price Index, weekly unemployment claims, June federal budget
* US corporate earnings: PepsiCo (NASDAQ:), Conagra Brands (NYSE:), Delta Air Lines (NYSE:)
* St. Louis Federal Reserve President Alberto Musalem and Atlanta Fed President Raphael Bostic both speak
* The US Treasury Department is auctioning $22 billion worth of 30-year bonds
(By Mike Dolan; Editing by Hugh Lawson; mike.dolan@thomsonreuters.com)
