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Morning Bid: CPI caution seems no barrier, sterling surges

[July 11, 2024] A look at the day ahead in U.S. and global markets from Mike Dolan

If Federal Reserve boss Jerome Powell had any inkling of the June U.S. inflation readout when speaking to Congress this week, then today's critical report doesn't look like it will prove a game changer.

But given the buoyancy of U.S. and world stocks at record highs and pretty serene Treasury and interest rate markets, that doesn't seem much of a bother for global markets right now.

As is now typical, the latest U.S. consumer price report grabs all the attention on Thursday. And an encouraging down tick in headline annual inflation is expected to be twinned by a "core" rate still stuck at a punchy 3.4%.

Powell remained cautious during the second leg of his congressional testimony on Wednesday. And yet futures stay wedded to two quarter-point Fed rate cuts this year, while 10-year Treasuries easily absorbed the latest sale of new paper.

Powered by yet another lift for artificial intelligence bellwethers - this time spurred by another earnings beat from Taiwan's TSMC - the SP500 jumped 1% on Wednesday and vaulted 5,600 for the first time, clocking seven straight daily gains for the first time this year.

TSMC scaled a record high on Thursday, cementing its position as Asia's most valuable company and topping a trillion-dollar value for the first time.

Micron Technology jumped 4%, Nvidia climbed 2.7% and Advanced Micro Devices added 3.9%. Big banks kick off the second quarter U.S. earnings season in earnest on Friday.

Equity markets in Europe and Asia rallied in the slipstream, with even China's beaten-down CSI300 catching a rare break ahead of next week's government plenum.

The Communist Party leadership meeting is expected to outline efforts to promote advanced manufacturing, revise the tax system to curb debt risks, manage a vast property crisis, and boost domestic consumption. A tall order, no doubt.

But the trigger for Thursday's rise was more likely a move by the China Securities Regulatory Commission to further curb short-selling.

With the dollar on the back foot again, much of the action early on Thursday was in currency markets.

Buoyed by last week's expected UK election landslide for the Labour Party and data showing the economy accelerated more than expected in May, sterling jumped to its highest level in four months.

The 0.4% GDP beat reinforced Wednesday's speech by Bank of England chief economist Huw Pill, seen as a swing voter in the split BoE monetary policy council.

Pill dampened hopes for a summer UK rate cut by stressing services inflation and wage growth showed "uncomfortable strength", and money markets now ascribe less than a 50% chance of first BoE rate cut next month.

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Produce is seen at El Progreso Market in the Mount Pleasant neighborhood of Washington, D.C., U.S., August 19, 2022. REUTERS/Sarah Silbiger/File Photo

But the euro was on the rise too - hitting its best level in more than a month as French markets calmed further following the indecisive election result there at the weekend.

France's benchmark CAC40 stock index rose 0.6%, while the French 10-year government debt premium over Germany squeezed as low as 62 basis points for the first time in almost a month.

Bank of France head François Villeroy de Galhau said on Thursday he hoped the country's political gridlock would be resolved by September, when the parliament of the euro zone's second-largest economy must vote on the country's budget.

Elsewhere, the focus was on fractious U.S. politics, with more pressure building on President Joe Biden to step aside ahead of November's White House race.

Democratic party heavyweights Nancy Pelosi and George Clooney, who may influence other Democratic lawmakers and financial donors, and two Senate Democrats cast more doubt on Biden's fitness to run.

Senate Majority Leader Chuck Schumer, meanwhile, has privately signaled he's open to a Democratic candidate other than Biden, according to Axios. Schumer, however, reiterated his support for Biden in a statement following the Axios report.

With Republican challenger Donald Trump now far ahead in betting markets to win the race, the relative calm in U.S. markets was notable.

Even currency markets where Trump's tariff and immigration pledges may hit hardest seemed steady. Mexico's peso, Brazil's real and China's yuan were firmer on Thursday - the first two near their best levels in a month.

Oil prices were steady but the annual gain in crude fell below 10% for the first time in a month. Global oil demand growth will slow to just under a million barrels per day this year and next, the International Energy Agency said, as it said Chinese consumption contracted in the second quarter.

Key developments that should provide more direction to U.S. markets later on Thursday:

* US June consumer price index, weekly jobless claims, June Federal budget

* US corporate earnings: PepsiCo, Conagra Brands, Delta Air Lines

* St. Louis Federal Reserve President Alberto Musalem and Atlanta Fed President Raphael Bostic both speak

* US Treasury auctions $22 billion of 30-year bonds

(By Mike Dolan; Editing by Hugh Lawson; mike.dolan@thomsonreuters.com)

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