Fresh record highs for the S&P 500 and the Nasdaq in a holiday-shortened week as cooler US economic data increased confidence that the Fed will start cutting rates in September.
Locally, the ASX 200 sprung to life mid-week, boosted by record highs on Wall Street and gains for key commodity prices. The big miners led the rally as iron ore rallied to a one-month high near $114.00 per tonne.
- Fed Chair Powell sounded dovish at the Sintra Forum in Portugal, describing "real progress on inflation."
- ISM Manufacturing PMI eased to 48.5 in June, below expectations of 49.1
- JOLTS job openings for May surprised to the upside, rising to 8,140k vs. 7,946k expected
- ISM Services PMI fell 5 points to 48.8 in June vs 52.7 expected
- FOMC Meeting Minutes sounded dovish, referencing progress on inflation and the cooling labour market
- Inflation in the Euro Area eased to 2.5% in June from 2.6% prior
- In the UK, exit polls showed the Labour Party set for a landslide win in the general election
- In China, the Caixin manufacturing PMI for June rose to 51.8, beating market forecasts of 51.2, marking the strongest number since May 2021
- In Australia, the minutes from the RBA’s June Board meeting sounded hawkish, warning that a future rate hike would be appropriate "if it was judged that inflation was returning to target more slowly than previously assumed."
- Retail Sales in Australia rose by 0.6% MoM, easily beating forecasts of 0.2%
- Crude oil gained 2.94% to $83.94 per barrel, its fourth straight week of gains
- Gold gained 1.29% this week to $2356.
- Wall Street's gauge of fear, the Volatility (VIX) index, fell to 12.08 from 12.45 prior.
- AU: Home loans and investment lending for homes (Tuesday, 8 July at 11:30am AEST)
- AU: Westpac Consumer Confidence (Tuesday, 9 July at 10:30am AEST)
- AU: NAB Business Confidence (Tuesday, 9 July at 11:30am AEST)
- NZ: RBNZ interest rate decision (Wednesday, 10 July at 12:00pm AEST)
- CN: CPI and PPI (Wednesday, 10 July at 11:30am AEST)
- JP: Machinery Orders (Thursday, 11 July at 9:50am AEST)
- CN: New Yuan Loans (Thursday, 11 July at no set time AEST)
- US: Fed Chair Powell Testimony (Wednesday, 10 July at 1:00am AEST)
- US: CPI (Thursday, 11 July at 10:30pm AEST)
- US: PPI (Friday, 11 July at 10:30pm AEST)
- US: Michigan Consumer Sentiment (Saturday, 13 July at 12:00am AEST)
- GE: Trade Balance (Monday, 8 July at 4:00pm AEST)
Source: AdobeImages
AU
Westpac Consumer Confidence
Tuesday, 9 July at 10.30am AEST
In June, the Westpac Consumer Sentiment Index increased by 1.7% to 83.6 points, marking the first rise in four months and the highest reading since February. Nonetheless, the index remains in deeply pessimistic territory as persistent inflation and high interest rates continue to weigh on Australian households.
In response to higher-than-expected inflation, the RBA has sounded more hawkish. At the last board meeting, it confirmed that it discussed the option to hike rates but not the option to cut rates. The threat of an additional RBA rate hike before year-end is expected to weigh on consumer sentiment this month and offset the positive impact of the Stage 3 tax cuts. Preliminary expectations are for a -0.3% fall in July, taking the index back to 83.4.
Westpac Consumer Confidence chart
Source: TradingEconomics
CN
CPI and PPI
Wednesday, 10 July 10 at 11.30am AEST
China’s May consumer prices registered a 0.3% increase from a year ago, unchanged from April and escaping deflationary territory for the fourth straight month. On the other hand, producer prices improved to -1.4% year-on-year from -2.5% prior, marking its smallest decline since February 2023.
While China’s inflation has somewhat stabilised, price growth remains at subdued levels, reflecting still-weak consumer demand. Any weaker reading may raise calls for more support measures in the second half of this year, to keep the economy on track towards its 5% growth target for 2024 and to drive a more sustainable recovery in economic conditions.
China's CPI and PPI figures
Source: Refinitiv
US
CPI
Thursday, 11 July at 10.30pm AEST
In May, the annual rate of inflation in the US unexpectedly slowed to 3.3% YoY from 3.4% in April, below forecasts of 3.4%. The annual core inflation rate eased to 3.4% YoY in May from 3.6% in April, marking its lowest reading in three years.
The cooler CPI readings were followed in the same session by a more hawkish than expected FOMC meeting as the Fed’s SEP dots showed just one 25bp cut in 2024 vs. the three rate cuts forecast in March.
Fed Chair Powell, speaking at the Sintra Forum in Portugal this week, sounded dovish compared to his tone at the FOMC meeting and described "real progress on inflation." This and softer economic data this week have increased confidence that the Fed will start cutting rates in September.
Further confidence will be gained if next week's CPI data is in line with or below market expectations. The preliminary expectation is for headline inflation to fall to 3.1% YoY from 3.3% prior. Core inflation is also expected to remain stable at 3.4% YoY. The rates market is currently pricing in 19bp of rate cuts for September and 48bp of Fed rate cuts before year-end.
US Core CPI chart
Source: TradingEconomics
US
Q2 2024 earnings
US Q2 2024 earnings season kicks off next week. The S&P 500 is expected to report 8.8% year-over-year (YoY) earnings growth for Q2 2024, potentially marking the highest rate since Q1 2022. This could be the fourth consecutive quarter of YoY earnings growth, signalling a continued recovery trend.
You can read a full preview of this earnings season written by IG’s Chief Market Analyst, Chris Beauchamp, here.
Source: Eikon
