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A Look at the Day Ahead in U.S. and Global Markets
Federal Reserve Chair Jerome Powell's statements on Tuesday injected stability into U.S. bond markets amidst election-related jitters, driving Wall Street stocks to all-time highs just before the July 4 holiday. This came as the Nasdaq hit new records and the S&P 500 surpassed 5,500 points for the first time. Tesla emerged as the highlight, soaring 10% to its highest value since January due to a smaller-than-expected 5% decline in Q2 vehicle deliveries. The auto giant remains the only member of the so-called "Magnificent 7" of U.S. megacaps still in the red for the year, but it saw an additional 3% rise ahead of Wednesday's trading.
Earlier in the week, U.S. Treasuries felt the pinch from rising bets on Donald Trump's potential return to the White House and the fiscal implications of his campaign promises. However, the situation calmed after Powell's remarks in Portugal. The ten-year Treasury yields eased back to 4.43% from nearly 4.5% peaks seen on Monday, driven by markets betting more than 60% on Trump's chances against Joe Biden after Biden's poor debate performance.
The week started with an inverted U.S. Treasury yield curve that steepened, causing the New York Fed's estimate of the 10-year term premium for holding longer-term government debt to flip back positive, a rare occurrence this year. Powell refrained from suggesting a rush to cut rates but did indicate the U.S. is on a "disinflationary path." Balancing economic sustenance with reining in inflation emerged as a key theme, particularly as new data suggest cooling growth alongside critical labor market updates.
Unexpectedly, U.S. May job openings jumped, slightly disrupting the narrative, given its data is a month older than most employment reports expected this week. Up next are ADP's June private sector jobs data, weekly jobless claims, June layoffs data, and service sector surveys, all leading up to the Fed’s policy meeting minutes release. Thursday’s holiday prompts expectations of thinning trading activity.
Wall Street futures remained steady before market open, and the dollar index eased against the euro and sterling as ongoing British and French elections unfolded. Tactical voting and second-round positioning in France's assembly elections reduced French government bond premiums over Germany to below 70 basis points for the first time since mid-June.
In Asia, however, a contrasting picture emerged. The dollar reached new 38-year highs against the Japanese yen without intervention from Japanese authorities and attained 2024 highs against China’s yuan. The yuan's decline followed a weak June service sector survey, impacting mainland Chinese stocks that are now up less than 1% for the year.
