- US stocks were mixed and the major indices were ultimately little changed following a choppy session and after Fed Chair Powell largely stuck to the script on the first day of his testimony to Congress. Nonetheless, the S&P 500 and Nasdaq continued their trend of setting fresh record highs but with the gains only marginal, while the Dow finished in shallow negative territory and Russell 2000 underperformed.
- USD was slightly firmer but with price action in DXY kept to within a tight range after Fed Chair Powell largely stuck to the script during his testimony at the Senate where he gave no signals about the timing of future Fed policy action and noted that elevated inflation is not the only risk the Fed faces, while the data calendar remained light.
- Looking ahead, highlights include South Korean Unemployment, Japanese PPI, Chinese Inflation, RBNZ Rate Decision, Supply from Australia.
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LOOKING AHEAD
- Highlights include South Korean Unemployment, Japanese PPI, Chinese Inflation, RBNZ Rate Decision, Supply from Australia.
- Click for the Newsquawk Week Ahead.
US TRADE
- US stocks were mixed and the major indices were ultimately little changed after a choppy session and with Fed Chair Powell largely sticking to the script on the first day of his testimony to Congress. Nonetheless, the S&P 500 and Nasdaq continued their trend of setting fresh record highs but with the gains only marginal, while the Dow finished in shallow negative territory and Russell 2000 underperformed.
- SPX +0.07% at 5,577, NDX +0.07% at 20,453, DJI -0.13% at 39,292, RUT -0.45% at 2,029.
- Click here for a detailed summary.
NOTABLE HEADLINES
- Fed Chair Powell said more good data would strengthen their confidence in inflation and that elevated inflation is not the only risk the Fed faces and reducing restraint too late or too little could unduly weaken the economy and job market but added that reducing restraint too soon or too much risks reversing inflation progress. Powell reiterated that restrictive policy is helping put downward pressure on inflation and they continue to make decisions meeting by meeting, while Q1 data 'did not support' the greater confidence in the inflation path that the Fed needs to cut rates and a policy rate cut is not appropriate until the Fed gains greater confidence inflation is headed sustainably toward 2%. Furthermore, Powell said he was not sending any signals today about the timing of future Fed policy actions and they need more good inflation data to cut rates, while the timing of rate cuts will depend on data and what is happening in the labour market.
- WSJ's Timiraos posted on X that "Powell inches the Fed closer to cutting rate" and suggested that Powell made a subtle but important shift in his assessment of the risks facing the Fed at the congressional hearing that moved the Fed closer to lowering interest rates when he said that the trade-offs between bringing inflation down and maintaining a solid labour market are changing.
- Fed is considering updating how it calculates extra capital Global Systemically Important Banks (GSIB) must hold, according to sources cited by Reuters. Fed is mulling an update to its GSIB surcharge, in line with economic growth, potentially saving banks billions of dollars in capital, while no final decision has been made and deliberations are ongoing.
- US Treasury Secretary Yellen said inflation will continue to come down over time and rents are keeping it higher than they would like.
- US Democrats' full caucus meeting saw lawmakers both defend US President Biden and air concerns about his ability to take on former President Trump, according to Axios citing attendees of the meeting. Furthermore, one House Democrat who was in both meetings said most of the caucus is still with him which means he'll stay in, while the lawmaker who told Axios on Monday night that the revolt is "over" said the gathering only confirmed that view.
FX
- USD was slightly firmer but with price action in DXY kept to within a tight range after Fed Chair Powell largely stuck to the script during his testimony at the Senate where he gave no signals about the timing of future Fed policy action and noted that elevated inflation is not the only risk the Fed faces, while the data calendar remained light.
- EUR marginally softened but retained the 1.0800 handle against the dollar as the latest ECB rhetoric provided little incrementally.
- GBP mildly retreated after breaching support at the 1.2800 level, while the attention turns to BoE Chief Economist Pill on Wednesday.
- JPY underperformed amongst its G10 FX peers which saw USD/JPY return to the 161.00 territory.
FIXED INCOME
- T-notes were pressured following Fed Chair Powell's testimony but bounced off lows as Europe left while the latest US 3-year auction was well received.
COMMODITIES
- Oil prices were lower amid some optimism regarding progress in Israel-Hamas hostage deal talks.
- US Private Inventory Data (bbls): Crude -1.9mln (exp. -1.3mln), Distillate +2.3mln (exp. +0.8mln), Gasoline -3.0mln (exp. -0.6mln), Cushing -1.2mln.
- US EIA STEO raised the forecast for 2024 world oil demand and now sees 1.10mln BPD Y/Y increase, while it also raised the 2025 forecast for world oil demand growth by 300k BPD and now sees 1.80mln BPD Y/Y increase.
- Iraq Basrah medium crude OSP (August) to Asia was set at a USD 0.10/bbl discount vs. Oman/Dubai average (prev. USD +0.60) and to Europe at a USD 2.40/bbl discount vs. dated Brent (prev. USD -2.85), while it was set to North and South America at a USD 0.65/bbl discount vs. ASCI (prev. USD -0.65/bbl)
- Port and City of Galveston are impacted by power outages after Hurricane Beryl, while port vessel operations remain suspended with a case-by-case consideration, according to the Galveston Maritime Commercial Centre.
- Russia's Nornickel is reportedly in talks with a Chinalco unit to move copper smelting operations to China, according to Reuters sources.
GEOPOLITICAL
MIDDLE EAST
- Israel’s Channel 12 cited the Minister of Culture who stated they are ready to make concessions to conclude the hostage deal and there is a strong desire among the majority of the members of the government and the PM to pass the deal. However, the minister added that they tell Hamas they will not retreat until they achieve their goals and will strengthen military power in Gaza, according to Al Jazeera.
- Hamas source said Israel only wants to discuss the release of security prisoners, while Hamas wants "comprehensive negotiations", according to Times of Israel.
- Arabic sources said Gaza deal negotiations are to resume in Doha on Wednesday and in Cairo on Thursday, while there was agreement on many points that were stuck between Hamas and Israel, according to Al Arabiya.
- Delegations from Egypt, Qatar, US and Israel are to meet in Doha on Wednesday for Gaza ceasefire talks, according to Al Qahera News citing a senior source. It was also reported that negotiations in Doha will discuss bridging the gaps, especially the ceasefire and the identity of the Palestinian prisoners, according to Al Jazeera citing the Israeli Broadcasting Corporation.
- Progress was reportedly made in talks on the Cairo hostage deal, according to Axios' Barak Ravid. **Israel was said to be satisfied with the round of talks that took place in Cairo yesterday but is careful not to develop expectations regarding the rate of progress of the negotiations on the abductee deal and the ability to reach an agreement in the coming days. However, another Israeli source said the optimistic messages that Egyptians have been spreading are a bit exaggerated and they are facing a difficult and complex negotiation that will take several weeks.
- Israeli strike that hit tents housing displaced families outside a school in Gaza's Khan Younis killed 29 Palestinians, according to Hamas-run media office.
- Syrian state news agency claimed Israel launched an air attack today targeting a possibly Iran-linked site around Baniyas, Syria, causing some material losses, according to Times of Israel's Berman.
- Yemen's Houthis said they targeted the Maersk Sentosa ship in the Arabian Sea with several ballistic missiles, while they attacked the Marathopolis ship in the Arabian Sea and the MSC Patnaree ship in the Gulf of Aden.
OTHER
- Ukrainian drones attacked military airfields, an oil refinery, and power substations in three Russian regions overnight, according to Ukrainian security sources cited by Reuters.
- US National Security Advisor Sullivan said the US is to strengthen Ukraine’s air defences with F-16s.
- NATO official said Russia still lacks munitions and troops to launch a major offensive in Ukraine, while Ukraine is expected to intensify operations as supplies and conditions permit. NATO official said Russia needs to secure significant ammunition supplies from other countries beyond what it already has and President Putin still thinks time is on his side and willing to endure truly staggering numbers of military casualties. Furthermore, the official warned to expect large Russian attacks like the one on Kyiv children's hospital during the NATO summit.
- Saudis warned G7 against Russian seizures with a debt sale threat warning made to EU states, via Bloomberg citing sources. Saudi hinted earlier this year that if the G7 decided to seize almost USD 300bln of Russia's frozen assets, it would sell some European debt and specifically mentioned debt issued by the French Treasury, according to two people cited by Bloomberg.
- Chinese Foreign Minister said must be vigilant against NATO reaching out to the APAC region.
- China and Belarus are conducting joint exercises 4 km from the Polish border and 40 km from Ukraine, according to Nexta TV.
- India races to build power plants in a region claimed by China, according to Reuters sources. India plans to spend USD 1bln to expedite the construction of 12 hydropower stations in the northeastern Himalayan state of Arunachal Pradesh, a move that could raise tensions with China which also lays claims to the region.
ASIA-PAC
NOTABLE HEADLINES
- Chinese Premier Li said factors impacting economic growth are becoming more complicated than ever, while he added they should see the achievements and should not avoid problems.
- BoJ released briefing material from its meeting with bond market participants and stated it received various views from participants in the survey including the idea to reduce monthly buying to JPY 2tln-3tln or have it at around JPY 4tln, while there was a view that it should be reduced to zero as soon as possible and that it should be reduced to JPY 1tln-2tln/month before going further. There were also suggestions for a rapid reduction, then a gradual one to offset concern and prevent volatility, a step-by-step reduction pace, and to plan reductions over around 2 years to avoid unnecessary volatility. Furthermore, opinions from bond market participants included the idea to taper at a set pace swiftly, taper swiftly and then moderately in several stages, or reduce buying gradually over two years.
- BoJ officials are reportedly more interested in hearing market views in the bond market meetings rather than forming discussions around specific options for bond purchase reductions, according to Bloomberg citing sources.
EU/UK
NOTABLE HEADLINES
- BoE executive director Truran said the BoE will maintain a high level of scrutiny of bulk purchase annuities and the Bank is ready to consider further measures to mitigate risks from bulk purchase annuities.
- UK government announced plans to boost a new national wealth fund to unlock private sector investments in which GBP 7.3bln of additional funding will be allocated via the UK Infrastructure Bank so investments can start being made immediately.
- ECB's Centeno in an interview from 3rd July at Sintra that recent PPI data calls into question the adequacy of ECB’s easing pace and they want to be close to 2% but added that with an economy that isn't growing, a little above 2% wouldn't hurt either.
- ECB's Nagel said the central bank does not lower rates 'on auto pilot' and is data dependent, while they will review their course at every meeting and the board "remains cautious". Furthermore, he expects inflation to ease to 2% in 2025 at the latest, according to remarks to Tagesspiegel.
- ECB's Panetta said the ECB can gradually reduce rates in line with the actual and expected inflation rate which will complete the disinflationary process underway. Panetta added the ECB should be ready to respond quickly to any shocks in one direction or the other, while previous rate hikes will continue to dampen demand, output and inflation for months to come.
