2024-07-03 04:35:35
Ankur Banerjee’s outlook on the future of European and global markets
Risk appetite rose in Asian markets, and European stocks also showed a similar opening trend after Fed Chairman Powell’s speech, as investors were boosted by expectations of an imminent US interest rate cut.
The aftermath of France’s election will continue to be in the spotlight as opponents of the National Rally intensify their efforts to prevent the far-right party from taking power in Sunday’s runoff election.
The euro fell to a two-week high on Monday, steadying at $1.074475 as RN failed to secure an outright majority, while futures suggested the pan-European index could escape a two-month low hit on Tuesday.
Powell’s statement that the U.S. was back on a “deflationary path” was enough to put the dollar on the defensive and U.S. Treasury yields lower, although he warned that more data was needed before policymakers would consider cutting interest rates.
“We’re just trying to understand whether the levels we’re seeing are a true reflection of what’s happening with underlying inflation,” Powell said at a conference hosted by the European Central Bank in Portugal.
As a result, the Fed remains data-dependent, so the next few inflation readings will be critical in determining the direction of U.S. interest rates at the end of the year. Traders expect the Fed to cut rates as much as twice this year.
Minutes from the Federal Reserve’s June meeting are due later today and could provide clues on the central bank’s views on U.S. interest rates.
Meanwhile, the European Central Bank is in no rush to reduce borrowing costs further after cutting interest rates last month, with data on Tuesday showing the crucial services component of euro zone inflation remained stubbornly high.
ECB Presidents Christine Lagarde and Philip Lane are due to speak in Portugal, and their comments could influence market expectations for interest rates. Traders currently expect the ECB to cut rates by 43 basis points this year.
In corporate news, Tesla (NASDAQ:) on Tuesday reported a 5% drop in second-quarter vehicle deliveries, a smaller-than-expected decline, as the electric car maker’s price cuts and incentives helped mitigate cooling demand. Still, the road ahead for electric car makers, not just Tesla, remains bumpy.
Key developments that could impact markets on Wednesday:
Economic events: June PMIs for France, Germany, the UK and the Eurozone
Speakers: Fed’s John Williams, ECB’s Christine Lagarde and Philip Lane at ECB forum in Portugal
(Writing by Ankur Banerjee in Singapore; Editing by Muralikumar Anantharaman)
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