LDN - Business

Shares post patchy performance ahead of Powell testimony

[July 09, 2024] By Tom Wilson

LONDON (Reuters) -Share markets posted a mixed performance on Tuesday as investors waited to see if U.S. Federal Reserve Chair Jerome Powell would sound supportive of rate cuts after evidence the U.S. labor market is cooling.

The Euro STOXX 600 fell 0.2%, with euro zone blue chip stocks down by a similar amount. Energy shares, tracking lower oil prices, led the losses, falling 1.2%.

Wall Street, however, was set for a brighter open with both S&P 500 futures and Nasdaq futures up 0.3% as megacap tech and semiconductor stocks look set to prolong a rally on Monday that saw stocks inch towards record peaks. [.N]

Powell is set to appear before Congress on Tuesday and Wednesday, in a hearing likely to take stock of whether recent signs of cooling inflation and a slowing job market will prompt the central bank to accelerate its plans to cut interest rates.

Investors wagered that recent soft labor market data has boosted the chance of a rate cut in September to about 80%.

"U.S.-wise, the Fed policy is important but not the only driver," said Alexandre Marquis, senior portfolio manager at asset manager Unigestion. "Corporate earnings, this helps alleviate the disappointing expectations for rate cuts."

The prospect of Powell's testimony pushed investor focus away from France, where political deadlock in the euro zone's second-biggest economy cooled concerns over the potential fiscal impact of far-left or far-right policies.

French political leaders from the left-wing bloc that came first in Sunday's legislative election said they intended to govern according to their tax-and-spend program, but centrists laid claim to a role as the left lacks a majority.

The euro had swung on Monday, but the single currency - a project of which France is at the centre - was steady on Tuesday close to a four-week high. [FRX/]

Euro zone bond yields also inched higher ahead of the Powell testimony. Germany's 10-year bond yield, the benchmark for the euro zone bloc, rose 1 basis point to 2.53%.

The closely watched gap between French and German borrowing costs, which rose to the highest since 2012 at 85 bps in late June on fears of a far-right victory, held steady at 66 bps.

France's hung parliament has reassured markets, Deutsche Bank analysts wrote, as "it makes it difficult for any policies to be implemented, with neither the far-left nor the far-right able to implement their program on these numbers."

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A passerby walks past an electric monitor displaying various countries' stock price index outside a bank in Tokyo, Japan, March 22, 2023. REUTERS/Issei Kato/File Photo

Earlier, Japan's Nikkei index jumped 1.96%, touching a record high, supported by semiconductor shares and a pummeled yen, which boosts the foreign earnings of Japanese companies.

MSCI's broadest index of Asia-Pacific shares outside Japan edged 0.4% higher, just a touch below a two-year top a day earlier.

TWO RATE CUTS?

U.S. consumer price data due on Thursday will also give further clues to the health of the U.S. economy. Headline inflation for June is expected to slow to 3.1%, from 3.3% in May, with core inflation forecast steady at 3.4%.

For the remainder of 2024, markets have fully priced in a total 50 basis points of easing, equivalent to two rate cuts.

The U.S. dollar steadied near four-week lows at 105.02 against a basket of currencies. The Japanese currency held at 160.87 per dollar, having plumbed a 38-year low of 161.96 per dollar last week.

In Britain, the pound was down a smidgeon from Monday's one-month peak as investors weighed up new political landscapes in Britain and France. Sterling was last up around 0.1% from the previous day at $1.2817.

Oil prices were steady after a hurricane that hit a key U.S. oil-producing hub in Texas caused less damage than markets had expected, easing concerns over supply disruption.

Brent futures fell 0.4% to $85.37 a barrel, while U.S. West Texas Intermediate crude climbed 2 cents to $82.33.

(Reporting by Tom Wilson in London and Stella Qiu in Sydney; Editing by Jamie Freed, Sherry Jacob-Phillips, Louise Heavens and Chizu Nomiyama)

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