Market Wraps
Watch For:
Jerome Powell Presents Monetary Policy Report to House Financial Services Committee; Canada Retail Trade for April
Today’s Top Headlines/Must Reads:
– Forget the Fed, and Focus on the Economy
– Investors Are Putting America First Again
– Google Cloud Launches Anti-Money-Laundering Tool for Banks, Betting on the Power of AI
– U.S. Tracked Huawei, ZTE Workers at Suspected Chinese Spy Sites in Cuba
Opening Call:
Stock futures were trading slightly softer on Wednesday, as investors got ready to tune in to what Powell will say about the economy and possibly interest rate direction when he appears on Capitol Hill.
“After the hawkish hold last week, there appears to be minimal new information for Powell to add any significant new direction on monetary policy,” Saxo Bank said.
“He may continue to signal more rate hikes, but Republicans would get the stage to express their concerns around the sticky core inflation while Democrats advocate for a more dovish policy given the rising risks to economy.”
In Europe, investors eyed U.K. inflation data that came in hotter than forecast, reinforcing expectations that the Bank of England will continue lifting interest rates.
Stocks on the Move
Amazon.com was down slightly. Jefferies raised its price target on the stock to $150 from $135, saying it sees the company as a “core beneficiary” from the rise of artificial intelligence as “AWS benefits from increased usage to train and run AI models.”
Coinbase and Marathon Digital shares rose premarket, after bitcoin prices surged above $28,000.
FedEx was falling 3% in premarket trading after it reported fiscal fourth-quarter earnings that beat analysts’ estimates but issued guidance that disappointed.
Tesla was rising 1.4%. Elon Musk met with India’s prime minister, Narenda Modi, on Tuesday and said he was confident the electric-vehicle maker “will be in India and will do so as soon as humanly possible.”
Forex:
The dollar was higher on safe-haven flows as investors turn risk averse ahead of Powell’s congressional testimony later, Unicredit Research said.
The foreign-exchange market’s reaction to Powell’s remarks will depend on how assertive he sounds about signalling further interest-rate rises, Unicredit said.
“A repetition of the tones used in his press conference last week is unlikely to spark additional volatility among majors and will probably not strengthen the USD further.”
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Sterling turned lower following brief gains after the U.K. inflation report, as the data are “bad news” for the economy, ActivTrades said.
“The markets’ initial reaction led to sterling gains, as investors, anticipating interest rate rises, drove demand for sterling,” ActivTrades said.
However, the pound quickly gave up those gains as the wider picture is negative for the currency, it added.
Further potential rate rises are likely to hinder economic activity and ultimately cause a contraction, generating currency weakness, ActivTrades said.
ING said sterling’s reaction probably suggests that the room for markets to price in further rate rises is limited, hence the positive implications of data surprises for the currency are also limited.
The chances of a 50bp rate rise at Thursday’s BOE meeting still look low but the data might encourage the central bank to not to push back against rate rise expectations, ING said.
Energy:
Oil prices edged up in Europe, continuing a stretch of sideways trading as the market is caught between conflicting demand drivers.
“Oil indicators are showing mixed signals. Short-term demand looks weak while supplies are healthy, but longer-term demand from China appears strong and OPEC production cuts promise to tighten the market later this year,” ANZ Bank said.
Metals:
Base metals and gold prices struggled in early London trading as macroeconomic weakness traded off against tightening fundamentals.
“Commodity markets are in the grip of lackluster demand, as manufacturing slows in China and the U.S.,” ANZ Research said.
However, it expects demand to pick up in the second half of this year, as inventories of industrial metals deplete, especially in Chinese warehouses.
“Copper’s spot premium rose despite strong production in China, but aluminum production there remains challenged by lower hydro-power generation.”
Today’s Top Headlines
SoftBank’s Masayoshi Son Says He’s Focusing on AI Inventions
TOKYO-SoftBank Group Chief Executive Masayoshi Son said Wednesday he was devoting himself to artificial intelligence and new inventions after what he described as a tear-filled rethinking of his life’s mission.
“The time is approaching for us to go on the counteroffensive,” Son said at the Japanese technology-investment company’s annual shareholder meeting. “I want SoftBank to lead the AI revolution.”
Kimmeridge-Backed Civitas to Buy Oil and Gas Assets for $4.7 Billion in Consolidation Push
Kimmeridge Energy Management co-founder Ben Dell for years has prodded large oil and gas companies to speed up consolidation in the sector.
Now a Kimmeridge-backed producer, Civitas Resources, is becoming a consolidator in its own right.
Global Investors Are Flooding Into Japan. That Is Making Some People Nervous.
Global investors are rushing to Japan’s stock market, eager to catch a boom that many of them didn’t see coming.
Foreign investors have bought a net $39 billion of Japanese stocks since the start of April, according to data from Japan Exchange Group. That has helped the benchmark Nikkei 225 index rise almost 30% this year, bringing it back to levels it last traded at over 30 years ago.
California Triggered a Recession Indicator. Will the Rest of the Country Follow?
The U.S. unemployment rate has fallen to historically low levels in the past two years, even as the Federal Reserve has ramped up interest rates to tamp down inflation. But record-low unemployment isn’t the case any more in California, the nation’s most populous state, where a steadily climbing unemployment rate might be moving beyond normalization and into treacherous territory.
It is tempting to write off California’s unemployment spike as a localized effect of the tech industry’s rebalancing. Yet, based on at least one economic indicator, the state’s labor outlook is signaling that a nationwide downturn could be in the offing.
Vacant Offices Are Piling Up in Silicon Valley
Silicon Valley companies are dumping office space at an accelerating pace, as tech leaders such as Google and Facebook parent Meta Platforms close locations and reassess their commitments to the workplace.
Office-vacancy rates in Silicon Valley, which includes the Northern California communities of San Jose, Palo Alto and Sunnyvale, were up to 17% in June from 11% in 2019, according to data firm CoStar Group. In some spots, such as Menlo Park and Mountain View, the rate surpassed 20% this spring, CoStar said.
Hunter Biden to Plead Guilty to Federal Tax Charges, Resolve Gun Violation
WASHINGTON-Hunter Biden, President Biden’s son, has reached an agreement to plead guilty to misdemeanor tax charges, likely heading off prison time and what would have been a politically explosive prosecution while his father campaigns for re-election.
The deal with federal prosecutors marks the culmination of a yearslong investigation by the U.S. attorney in Delaware, David Weiss, who was appointed by former President Trump and has remained in office under the Biden administration to see through the criminal inquiry into the president’s son.
Source: Dow Jones Newswires