Fed Chairman Powell Testifies at Senate, Inflation Data
Sizable movements were seen across the markets as US Federal Reserve Chairman Jerome Powell hinted in its testimony in front of US lawmakers that there could be a case for a rate cut at the FOMC meeting later this month. Despite a strong job market and stock indices rising to new record levels, the Fed is concerned about unresolved trade issues and is also worried about the weakness in global growth. Following this testimony, the dollar weakened, while gold prices pushed with ease again above the $1,400 threshold. While 10-year US Treasury Note yields were also impacted, the market rate remained above two percent. Stock indices meanwhile rallied on these developments with the S&P 500 reaching for the first time ever the 3,000 mark.
While US stock indices rallied to new record levels, the same was not the case in all regions of the world. In Europe especially the German index lagged behind the trend closing again lower. While the US stock markets are reaching new records, the Volatility Index VIX moved towards the low levels seen during the stock market rally in April.
On Thursday European countries like Germany, France and Sweden, as well as the United States will publish monthly CPI statistics. From the US also jobless new claims, Federal Reserve Bank statistics and the Treasury budget deficit level will be presented. A further testimony from Fed Chair Jerome Powell in front of the Senate Banking Committee is scheduled for Thursday.
The EUR/USD pair jumped higher due to dollar weakness, following the testimony of Jerome Powell on Capitol Hill, where he hinted that there could be a case for a rate cut later this month. While the Federal Reserve is to some extent pressured by US President Trump and also overall market expectations to proceed with rate cuts, when questioned by lawmakers, Powell insisted on the independence of the Federal Reserve and would not just leave his position if he receives a phone call from President Trump to do so.
In terms of fundamentals, industrial production (IP) data from both France and Italy was better than expected, clearly outperforming the weak results from Germany earlier this week. On a monthly basis IP was up in France by 2.1% vs. 0.4% expected and in Italy by 0.9% vs. 0.2% expected.
For Thursday inflation data releases from Germany, France and the United States in the for of monthly consumer price index (CPI) statistics are expected. Inflation is also one parameter, which central banks take into consideration when making monetary policy decisions.
Bitcoin prices briefly tipped above $13,000 for the first time in July. However the cryptocurrency was unable to hold onto this high and significantly retraced on Wednesday afternoon and continuing lower stopping its fall not far from the $11,000 mark for now. Remarkably when seen over the 24 hours frame Bitcoin is by far not the worst performing cryptocurrency. Ripple, EOS and Bitcoin Cash suffered higher losses even though they did not gain as much in the upswing as Bitcoin did.
Oil prices continued rising almost in a straight line with a barrel of WTI crude oil easily exceeding the $60 threshold. After the American Petroleum Institute (API) announced on Tuesday already a sizable draw of 8.1 million barrels from inventories over the course of the past week, the weekly figures from the Energy Information Administration (EIA) indicated an even bigger draw. Whereas most analysts expected earlier a sizable decrease in inventories, the 9.5-million-barrel draw was still above those expectations. This is also the third biggest draw in that statistic for this year.
Another factor having potential driving the oil markets are the developments in the Persian Gulf around Iran. After British armed forces seized an oil tanker carrying Iranian oil in the Strait of Gibraltar, Iran warned that it could retaliate by seizing a ship from the UK. As the United States are starting to form a coalition to protect commercial vessels against Iranian aggression, new reports indicate that Iran tried unsuccessfully to intercept a British tanker and force it into Iranian waters.
Major stock indices moved higher on increased hopes of a coming rate cut by the Federal Reserve as the S&P 500 raced above 3,000. While stocks in many economic sectors raced higher on this news, bank (US Banks ETF -1.08%) stocks closed overall lower. A recent analysis from the investment bank Goldman Sachs (-0.79%) indicated that rate cuts could have a sizable impact on the margins of wall street banks such as Wells Fargo (-1.51%) or Bank of America (-1.26%).
Boeing (-0.49%) stocks closed lower despite the overall positive market sentiment and the US President Trump announcing that Qatar was placing a large order with Boeing. Reports indicate that state-owned Qatar Airways placed orders for five 777F freighter aircraft. Qatar Airways is currently using a mixed fleet of Airbus and Boeing aircraft.
Tesla (+3.85%) shares edged higher, practically recovery from all the losses of the past four trading days. Reports indicate that the electric car maker is intending to increase production levels at its California car plant and is again hiring people.
The earnings season is slowly starting to take shape. Among other companies on Thursday Delta Air Lines will publish quarterly earnings, followed by Infosys on Friday. Then next week companies like Citigroup, Goldman Sachs and JP Morgan Chase will publish their numbers.
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