Morning Bid: Calm markets as China skirts deflation, NZ doves coo
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[July 10, 2024] A
look at the day ahead in U.S. and global markets from Mike Dolan
Even if U.S. inflation remains too irksome for the Federal Reserve to
sound the all clear, there's much less trepidation overseas.
Fed chair Jerome Powell gave little away in Tuesday's congressional
testimony, remaining coy about the timing of a first interest rate cut
as the price picture remains murky but also doffing his cap to a
softening jobs market.
Although he reprises the appearance to the House Financial Services
Committee on Wednesday, nothing he said shifted the dial much.
Exactly 50 basis points of Fed easing remains priced in futures for the
rest of this year - twice what the Fed itself has indicated. Ten-year
Treasuries seem stuck just under 4.3% as some $39 billion of paper goes
under the hammer later and following a decent take-up of 3-year notes on
Tuesday.
But with Thursday's June U.S. consumer price update ensuring an eerie
calm remains over world markets, leaving U.S. stock benchmarks to eke
out another series of record highs yesterday, China's equivalent price
report for last month showed how weak the global goods inflation pulse
has become.
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China's consumer price growth barely managed to stay positive for a
fifth month in June. At just 0.2%, it was half the annual rate expected
and factory gate deflation persisted.
Mainland Chinese stocks resumed their relentless decline after Tuesday's
brief bounce and are back in the red for the year - and, remarkably, 10%
below the level they were five years ago. The yuan also edged lower.
What's more, a typically hawkish Reserve Bank of New Zealand opened the
door to monetary easing of its own even as it held policy rates steady
on Wednesday. "There are signs inflation persistence will ease in line
with the fall in capacity pressures and business pricing intentions," it
said in what was read as a dovish commentary.
The kiwi dollar fell 0.7% as markets priced an earlier start to rate
cuts and it hit a 16-month low against the Australian dollar.
Next up on Wednesday is Bank of England chief economist Huw Pill -
likely a swing voter in the BoE's policymaking council. UK markets have
grown slightly more confident of a first BoE rate cut as soon as next
month now that last week's election is out of the way - and money
markets see a 60% chance of a move on August 1.
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![](../images/071024PIX/busine73.jpg)
A pork vendor attends to a customer at a morning market in Beijing,
China August 9, 2023. REUTERS/Tingshu Wang/File Photo
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The pound was firmer against a steady dollar.
French markets also steadied, with stocks and bonds there rallying
after a fresh post-election wobble on Tuesday when Moody's said the
ensuing parliamentary gridlock was negative for the country's credit
rating.
Back on Wall Street, the sixth gain in a row for the S&P500
disguised a down day for most of the index's constituents and Big
Tech megacaps again flattered the close. After Tesla's recent
recovery, all seven of the so-called 'Magnificent 7' of top stocks
are now back in positive territory for the year.
And ahead of the second-quarter U.S. earnings season, the tech
picture still looks generally rosy.
TSMC, the world's largest contract chipmaker, reported strong growth
in second-quarter revenue that handily beat market forecasts on the
back of booming demand for artificial intelligence (AI)
applications. Its stock rose 0.5%.
Key developments that should provide more direction to U.S. markets
later on Wednesday:
* Federal Reserve chair Jerome Powell reprises congressional
testimony to the House Financial Services Committee; Chicago Fed
President Austan Goolsbee, Fed Governor Lisa Cook and Fed Governor
Michelle Bowman speak; Bank of England chief economist Huw Pill and
BoE policymaker Catherine Mann speak
* NATO Summit in Washington
* US Treasury auctions $39 billion of 10-year notes
(By Mike Dolan, editing by Christina Fincher, mike.dolan@thomsonreuters.com)
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