The Thursday Market Minute

  • Global stocks bounce higher as investor rekindle bets on deeper Fed rate cuts following dovish Powell testimony to Congress yesterday.
  • CME Group futures prices suggest a 27% chance of a 50 basis point cut after Powell said the Fed would "act appropriately" to slowing growth and inflation signals.
  • Global oil prices extend gains as storm Barry heads towards the Louisiana coast, forcing U.S. drillers to shutter rigs and platforms as the Governor declares a state of emergency.
  • U.S. equity futures suggest another run at record highs on Wall Street Thursday ahead of key inflation data at 8:30 Eastern time, second quarter earnings from Delta Airlines and the second day of Congressional testimony from Fed Chair Jerome Powell.

Market Snapshot

U.S stocks look set to challenge fresh record highs Thursday as investors extend their market reaction to Federal Reserve Chairman Jerome Powell's testimony on Capitol Hill yesterday that rekindled hopes of deeper near-term rate cuts.

Powell told lawmakers on the House Financial Services committee that slowing global manufacturing growth, tame inflation readings and the lingering U.S.-China trade dispute were all having an impact on business confidence and investment. If continued, he said during his first of two sessions before Congress that continues later today, near-term growth and inflation levels could slow further, and thus there could be some merit in an "insurance" rate cut in order to prevent those conditions from developing further.

"Based on incoming data and other developments, it appears that uncertainties around trade tensions and concerns about the strength of the global economy continue to weigh on the U.S. outlook," Powell said. "Manufacturing, trade and investment are weak all around the world ... we have agreed to begin discussions again with China, and that is a constructive step. It doesn't remove the uncertainty."

U.S. stocks hit fresh intra-day record highs following Powell's comments yesterday, which were buttressed by minutes from the Fed's June 19 meeting released later in the session, with the S&P 500 briefly crossing the 3,000 threshold for the first ever and the Nasdaq Composite index ending the session at an all-time high.

Wall Street futures suggest investors are ready to test those levels again this morning, with the prospect of a softer-than-expected inflation reading at 8:30 am Eastern time providing a potential extra boost, with contracts tied to the Dow Jones Industrial Average suggesting an 86 point gain and those linked to the S&P 500 indicating a 9.4 point advance that would take the broadest benchmark of U.S. stocks back towards the 3,000 point threshold.

Critically, Powell's assessment of the trade impact on growth, investment and inflation was echoed yesterday by the European Commission, which downgraded Eurozone growth forecasts -- as well as its assessment of consumer price gains -- citing the heightened uncertainty linked to U.S. trade policy.

Collectively, the twin views have not only revived bets on a 50 basis point rate cut from the Fed later this month -- CME Group futures are pricing in a 27% chance, compared to just 2.5% before Powell's testimony yesterday -- but also the prospects of near-term easing from the European Central Bank as well.

That has both the euro and the U.S. dollar on the back foot in early European trading and is also adding renewed downward pressure on benchmark government bond yields, with 10-year Treasury notes marked at a yield of 2.05% and similarly-date German bunds, a proxy for risk-free interest rates in the Eurozone, trading at -0.311%.

European stocks, however, were given a fresh boost from Powell's dovish testimony and the hopes for similar support from the ECB, either in the final months of Mario Draghi's 8 year term as President, which expires in October, or under newly-nominated Christine Largarde, who currently runs the International Monetary Fund.

The Stoxx 600 benchmark bumped 0.32% higher at the start of trading in Frankfurt while Britain's FTSE 100 rose 0.27% on the back of basic resource and energy stocks gains.

Overnight in Asia, stocks bounced firmly higher as the dollar index, which tracks the greenback against a basket of its global currency peers, retreated and bullish sentiment advanced, helping the MSCI Asia ex-Japan index gain 0.75% into the close of the session while the Nikkei 225 in Tokyo jumped 0.51% to close at 21,643.53 points.

Global oil prices extended gains overnight, as well, taking U.S. crude prices to a five-week high as drilling in the Gulf of Mexico evacuated staff in the face of Tropical Storm Barry, which could accelerate to hurricane strength as it heads towards the Louisiana and upper Texas coast.  

The upward price surge, which saw U.S. contracts rise 4.5% yesterday, was given further support from data from the Energy Information Administration which showed domestic crude stocks fell by a much-larger-than-expected 9.5 million barrels last week.

Brent crude contracts for September delivery, the global benchmark, were seen 55 cents higher from their Tuesday close and changing hands at $67.56 per barrel in early European trading while WTI contracts for August, which are more tightly linked to U.S. gas prices, were marked 41 cents higher at $60.84 per barrel.