A look at the day ahead in the US and global markets by Mike Dolan
Even if U.S. inflation remains too troublesome for the Federal Reserve to make the cut, there is far less concern abroad.
Fed Chairman Jerome Powell gave little away in Tuesday’s congressional testimony. He remained cautious about the timing of a first rate cut as the price picture remains cloudy, but he also tipped his hat to a softening labor market.
Although he appears again before the House Financial Services Committee on Wednesday, none of his words have changed the dial much.
Exactly 50 basis points of the Fed’s easing will remain priced in futures for the rest of this year – twice as much as the Fed itself has indicated. Ten-year Treasuries appear to be stuck at just under 4.3%, with about $39 billion of paper going under the hammer later and after a decent drawdown in three-year bonds on Tuesday.
But with Thursday June’s US consumer price update keeping global markets in an eerie calm, sending US stock benchmarks to another set of record highs yesterday, last month’s Chinese price report showed just how weak global goods inflation has become.
Chinese consumer price growth barely managed to remain positive for a fifth month in June. At just 0.2%, this was half the expected annual rate, and factory deflation continued.
Mainland Chinese stocks resumed their brutal decline after Tuesday’s brief rebound and are back in the red for the year – and remarkably 10% below levels seen five years ago. The yuan also fell lower.
Moreover, the typically aggressive Reserve Bank of New Zealand opened the door to its own monetary easing, even as it kept policy rates steady on Wednesday. “There are signs that inflation persistence will decline in line with the decline in capacity pressures and corporate pricing intentions,” the report said in what was read as a dovish commentary.
The dollar fell 0.7% as markets priced in an earlier start to rate cuts, hitting a 16-month low against the Australian dollar.
Next Wednesday, Huw Pill, chief economist at the Bank of England, is likely to be a decisive vote on the BoE’s policy board. UK markets have become slightly more confident of a first rate cut from the BoE next month, now that last week’s election is behind us – and money markets see a 60% chance of a move on August 1.
The pound was firmer against a stable dollar.
French markets also remained stable, with stocks and bonds recovering after another post-election swing on Tuesday, when Moody’s (NYSE:) said the resulting parliamentary deadlock was negative for the country’s credit rating.
Back on Wall Street, the sixth straight gain was a down day in disguise for most of the index’s components, and Big Tech megacaps once again flattered the close. Following Tesla’s (NASDAQ:) recent recovery, all seven of the so-called ‘Magnificent 7’ of top stocks are now back in positive territory for the year.
And ahead of the US second quarter earnings season, the technical picture still looks generally rosy.
TSMC, the world’s largest contract chipmaker, reported strong second-quarter revenue growth that easily beat market forecasts, thanks to growing demand for artificial intelligence (AI) applications. The stock rose 0.5%.
Key developments that should give more direction to US markets later on Wednesday:
* Federal Reserve Chairman Jerome Powell reiterates congressional testimony before House Financial Services Committee; Chicago Fed President Austan Goolsbee, Fed Governor Lisa Cook and Fed Governor Michelle Bowman speak; Huw Pill, chief economist of the Bank of England, and Catherine Mann, policymaker of the BoE, speak
* NATO summit in Washington
* The US Treasury Department is auctioning $39 billion worth of 10-year bonds
(By Mike Dolan, Editing by Christina Fincher, mike.dolan@thomsonreuters.com)
