A look at the day ahead in the US and global markets by Mike Dolan
After an intense month focused on election risks around the world, markets quickly shifted back to the more prosaic question of the cost of money – and whether disinflation will resume to the extent that borrowing costs can finally fall.
Thursday’s June US consumer price update is the key moment of the week for many investors – with nominal rates expected to have fallen by two-tenths of a percentage point to 3.1%, but the ‘core’ rate still remaining at 3.4% stiches.
With Fed Chairman Jerome Powell set to begin his bipartisan biannual congressional testimony later on Tuesday, the consensus CPI forecast likely reflects what the central bank currently thinks of the situation – encouraging but not yet there.
But with US unemployment now above 4.0% for the first time since late 2021, markets may be looking for a more nuanced approach from the Fed chairman, who sees him increasingly wary of a sudden weakening of the labor market in terms of quarterly real-time GDP. estimates decrease again to about 1.5%.
There were some other reasons for the Fed’s optimism ahead of the testimony.
The path that U.S. inflation is expected to follow in coming years generally weakened in June amid declining projections of price increases for a wide range of consumer goods and services, a New York Fed survey showed on Monday .
One-year inflation was 3% as of June – lower than the 3.2% increase expected in May – and five-year expectations fell from 3% to 2.8%.
Prices are also better behaved this week, falling more than 3% from a ten-week high late last week and halving the annual oil price increase to 10%.
Tuesday’s losses came after a hurricane that hit a key U.S. oil-producing hub in Texas caused less damage than many in markets expected, easing concerns about supply disruption.
Before Powell starts speaking later, there will also be an update on US small business confidence over the past month.
Before the bell, record-high US stock indexes look set to extend their gains, with futures back in positive territory.
Fed funds futures have two full quarter-point rate cuts planned for the rest of the year, with 10-year U.S. Treasury yields hovering below 4.3% ahead of another tough week of debt selling. About $119 billion in coupons will go under the hammer this week, starting with 3-year notes on Tuesday and then 10s and 30s later in the week.
The dollar was slightly higher, rising against the euro, yen, yuan and pound.
In the messier world of politics, the picture has been even less clear — although most recent polling from the White House suggests President Joe Biden will remain the Democratic nominee for the November election.
In Europe, the new British government has set out its position on how to restart growth without much room for maneuver in tight public finances. She initially focused on supply-side reforms that would pave the way for infrastructure projects and more housing construction. UK shares were firmer.
The dust has settled in France over the weekend’s elections, leaving a stalemate in parliament, but the temporary reappointment of centrist Prime Minister Gabriel Attal is a step that could help the country reach the Olympics next month. and possibly a compromise budget for 2025 in the fall.
European stocks and the euro fell after Monday’s relief rally following the failure of France’s far-right or left-wing alliance to win an overall majority in parliament. Yields and spreads on French government bonds were stable.
Stocks were broadly higher in Asia, outperforming with gains of almost 2%, while ending in the red in Hong Kong.
Key developments that should give more direction to US markets later on Tuesday:
* U.S. NFIB Small Business Survey in June; Inflation Mexico June
* Fed Chairman Jerome Powell testifies before the Senate Banking Committee; Fed Governor Michelle Bowman and Fed Vice Chairman for Oversight Michael Barr both speak
* Leaders meet in Washington for the NATO summit
* US Treasury auctions $58 billion in 3-year notes, $46 billion in 12-month notes
(By Mike Dolan, editing by XXXX mike.dolan@thomsonreuters.com)
