- US stocks gained with a significant rally in tech leading the advances amid a myriad of positive semiconductor news including AMD's solid report, US exemptions for ASML and Tokyo Electron in its new sanctions on exports to Chinese chipmakers, and Nvidia's inclusion to Morgan Stanley's top pick list. Stocks then saw some mild two-way action following the FOMC announcement but were ultimately underpinned during Fed Chair Powell's dovish press conference.
- USD weakened and the DXY retested the 104.00 level to the downside following the FOMC and press conference where Fed Chair Powell provided a dovish tone and suggested that September is the base case for a rate cut if the data supports it.
- Looking ahead, highlights include South Korean Trade Data, Regional PMIs, Australian Trade Data, Chinese Caixin Manufacturing PMI.
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LOOKING AHEAD
- Highlights include South Korean Trade Data, Regional PMIs, Australian Trade Data, Chinese Caixin Manufacturing PMI.
- Click for the Newsquawk Week Ahead.
US TRADE
- US stocks gained with a significant rally in tech leading the advances amid a myriad of positive semi-conductor news including AMD's solid report, US exemptions for ASML and Tokyo Electron in its new sanctions on exports to Chinese chipmakers, and Nvidia's inclusion to Morgan Stanley's top pick list. Stocks then saw some mild two-way action following the FOMC announcement but were ultimately underpinned during Fed Chair Powell's dovish press conference.
- SPX +1.6% at 5,522, NDX +3.0% at 19,362, DJIA +0.2% at 40, 843, RUT +0.5% at 2,254
- Click here for a detailed summary.
FOMC
- FOMC kept rates unchanged at 5.25-5.50%, as expected, while it stated that inflation remains 'somewhat elevated' and the committee is attentive to the risks to both sides of its dual mandate. FOMC repeated it does not expect it will be appropriate to reduce the target range until it has gained greater confidence that inflation is moving sustainably toward 2% but noted that in recent months, there has been some further progress toward the Committee's 2% inflation objective (prev. 'modest' progress) and said risks to achieving its employment and inflation goals continue to move into better balance.
- Fed Chair Powell said in the post-meeting statement that inflation has eased but remains above the goal and Q2 data has added confidence on inflation. Powell added the Fed is maintaining its restrictive stance and policy is well positioned to deal with dual mandate risks.
- Fed Chair Powell said during the Q&A that the Committee has made no decisions about future meetings and the broad sense is the Fed is moving closer, while he added that if the Fed sees inflation move down with expectations, growth remains reasonably strong and the labour market remains as it is, a rate cut would be on the table in September. Powell said the policy path ahead will depend on the economy and he can imagine a scenario of zero cuts this year, to several, depending on how the economy evolves, as well as noted that they have made real progress on inflation and there is growing confidence on the path to 2% inflation. Furthermore, Powell said it's coming to be the time to adjust rates to support our continued progress and the Fed does not need to be 100% focussed on inflation, while he added the job is not done on inflation but they can afford to begin to dial back restriction in the policy rate. Powell also said that some people examined the case for cuts at this meeting, although overwhelmingly, the sense was not at this meeting, but at the next if the data supports it.
NOTABLE HEADLINES
- US Quarterly Refunding: USD 125bln (prev. 125bln), to raise new cash of 14bln. 3yr 58bln (exp./prev. 58bln), 10yr 42bln (exp./prev. 42bln), 30yr 25bln (exp./prev. 25bln).
DATA RECAP
- US Employment Costs (Q2) 0.9% vs. Exp. 1.0% (Prev. 1.2%)
- US ADP National Employment (Jul) 122.0k vs. Exp. 150.0k (Prev. 150.0k, Rev. 155k)
- US Pending Sales Change MM (Jun) 4.8% vs. Exp. 1.5% (Prev. -2.1%, Rev. -1.9%)
- US Chicago PMI (Jul) 45.3 vs. Exp. 45.0 (Prev. 47.4)
FX
- USD weakened and the DXY retested the 104.00 level to the downside following the FOMC and press conference where Fed Chair Powell provided a dovish tone and suggested that September is the base case for a rate cut if the data supports it.
- EUR eked slight gains with early support seen following the slightly hotter-than-expected EZ inflation data.
- GBP benefitted from the dollar weakness and alongside gains in cyclical peers.
- JPY outperformed significantly which saw USD/JPY dip below the 150.00 handle in the aftermath of the BoJ rate hike and Powell's dovish presser.
FIXED INCOME
- T-notes were firmer on the day and extended on gains after Powell's dovish press conference where he kept the door open for a September cut and stated it is coming to be the time to adjust rates.
COMMODITIES
- Oil prices crude complex saw notable strength amid heightened Middle East tensions and bullish inventory data.
- US EIA Weekly Crude Stocks w/e -3.436M vs. Exp. -1.55M (Prev. -3.741M)
- Russian Energy Ministry decided to ban gasoline exports from September-October and said there is no need for a diesel fuel export ban, according to TASS.
GEOPOLITICAL
MIDDLE EAST
- Iran’s Supreme Leader Ayatollah Ali Khamenei issued an order for Iran to strike Israel directly in retaliation for the killing in Tehran of Hamas leader Ismail Haniyeh, according to the New York Times citing three Iranian officials. It was also earlier reported that Iran's Supreme Leader said Iran sees as a duty to avenge Haniyeh’s assassination, according to IRNA.
- Iran's Foreign Ministry said Iran emphasises US 'responsibility' for Haniyeh's assassination and Iran affirms its right to respond appropriately to the violation of its sovereignty and territorial integrity.
- Iran’s Ambassador in Lebanon said Iran has not been seeking to expand the war but will not allow the region to "be prey" for US and Israel.
- Israeli PM Netanyahu said Israel delivered 'crushing blows' to Iranian proxies and will exact a heavy price for any aggression towards it from anywhere.
- Israeli spokesperson said hostage deal talks are ongoing.
- Hamas National Relations officer in Lebanon said the assassination complicates the round of negotiations and may lead to their collapse, according to Sky News Arabia. It was also reported that sources involved in the Hamas-Israel hostage deal talks suggested the killing of Haniyeh will have an impact on the negotiations since Haniyeh was a significant figure in the negotiations, according to Kann's Stein.
- Hezbollah MP Ammar said Israel "demands war, and we are up for it".
- The body of Hezbollah military commander Fuad Shukr was found in the rubble in Beirut's southern suburbs, according to Reuters citing two security sources.
- There were unconfirmed reports that senior IRGC member Hajj Habib Zadeh had been assassinated in Damascus, Syria.
OTHER
- Philippines military said it held a maritime exercise with the US in the South China Sea on Wednesday and the exercise was inside the Philippines’ exclusive economic zone.
ASIA-PAC
NOTABLE HEADLINES
- Chinese Premier Li said China needs to strengthen its economic goals.
- US weighs new restrictions on China's access to AI memory chips in which new chip limits could come as soon as next month.
- BoJ Governor Ueda said Japan's economy is recovering moderately and that upside risks to prices require attention, while he added they will continue to lift rates and adjust the degree of easing if the current economic/price outlook is realised. Ueda commented they don't believe the rate hike will have a significant negative impact on the economy and they don't have a 0.5% policy rate in mind as a ceiling. Furthermore, he said the main issue is where to stop raising rates when approaching the neutral rate and the policy response this time was made considering the upward risks to prices as being considerably large, while he added it is hard to tell when the next hike will be as it is dependent on economic indicators.
- Japanese Ministry of Finance said it spent USD 36.6bln on FX intervention in July.
EU/UK
DATA RECAP
- German Unemployment Change (Jul) 18.0k vs. Exp. 15.0k (Prev. 19.0k)
- German Unemployment Rate (Jul) 6.0% vs. Exp. 6.0% (Prev. 6.0%)
- EU HICP Flash YY (Jul) 2.6% vs. Exp. 2.5% (Prev. 2.5%)
- EU HICP-X F&E Flash YY (Jul) 2.8% vs. Exp. 2.7% (Prev. 2.8%)
