July 9 2024: Japan’s Nikkei reached a record high on Tuesday, while investors worldwide awaited Federal Reserve Chair Jerome Powell’s testimony, hoping he would indicate support for rate cuts following signs of a cooling U.S. labor market.
In Europe, market openings were mixed, with EUROSTOXX 50 futures down 0.2% and FTSE up 0.1%. S&P 500 futures gained 0.2% and Nasdaq futures firmed 0.3%, after Wall Street equities closed at record peaks on Monday.
The Nikkei index surged 2.3% to a record high, bolstered by semiconductor shares. MSCI’s broadest index of Asia-Pacific shares outside Japan edged 0.4% higher, just below a two-year top reached the previous day. Taiwanese shares hit a record high before profit-taking set in, leaving them down 0.1%. China’s blue-chip index rose 1.1%, and Hong Kong’s Hang Seng index increased by 0.5%.
Powell is scheduled to appear before Congress on Tuesday and Wednesday, as investors bet that recent weak labor market data has significantly raised the probability of a rate cut in September to about 80%.
“I think markets got a degree of optimism that Powell will be cautiously dovish and that the CPI later this week will confirm that disinflation is back on track,” said Shane Oliver, chief economist at AMP in Sydney. “When you look at the U.S. economy, most of the data is softening. Jobs figures on Friday were on the soft side, unemployment trending higher. Most labor market leading indicators are cooling down.”
The key economic event this week is the U.S. consumer price report on Thursday, where June’s headline inflation is expected to slow to 3.1% from May’s 3.3%, with core inflation forecast to remain steady at 3.4%. Markets have fully priced in a total of 50 basis points of easing, equivalent to two rate cuts, for the remainder of 2024.
In foreign exchange markets, the euro held steady at $1.0825 after Monday’s sharp swings, as investors adjusted to a hung parliament in France, which indicates potential political gridlock but alleviates many fiscal concerns from far-right or leftist victories.
The U.S. dollar steadied near four-week lows at 105.01 against a basket of currencies, providing some relief to the yen and yuan. The Japanese yen was at 160.95 per dollar, recovering from a 38-year low of 161.96 per dollar last week. The offshore Chinese yuan hovered at 7.2897 per dollar, after gaining for four straight sessions, moving away from 7-1/2 month lows.
Treasuries were steady, with the 10-year government bond yield at 4.2841%, having declined for four straight sessions, and 2-year yields flat at 4.6285%, nearing a three-month low.
In commodity markets, gold rose 0.3% to $2,365.69 an ounce, recovering from a 1.4% fall overnight.
Oil prices fell after Hurricane Beryl hit a key U.S. oil-producing hub in Texas, causing less damage than expected. Brent futures fell 0.2% to $85.54 a barrel, while U.S. West Texas Intermediate (WTI) crude slipped 0.3% to $82.10.
