Powell Signals US Rate Cuts as Inflation Eases

The Reserve Bank of New Zealand projected inflation to return within its target range by late 2024, causing the kiwi to fall 0.7% as traders bet on rate cuts. In the US, Federal Reserve Chair Jerome Powell noted the economy is no longer overheated, raising expectations for a rate cut in September.

Equities

On Tuesday, London's FTSE 100 dropped by 0.7%, marking its steepest fall in nearly a month, largely due to declines in banking stocks and energy giant BP. Barclays, HSBC, and Lloyd's all fell between 3% and 4% following Bank of England policymaker Jonathan Haskel's comments about maintaining current interest rates. BP lost 4.3% after warning of a hit to second-quarter earnings from lower refining margins and weak oil trading. Indivior Plc plummeted 35.9% after announcing job cuts and lowering its profit forecast.

In the US, the S&P 500 and Nasdaq closed at record highs on Tuesday, boosted by Nvidia's 2.5% gain. This came after Federal Reserve Chair Jerome Powell indicated that more "good" economic data could justify rate cuts. Microsoft dipped 1.4%, while Tesla added 3.7%, bringing its 2024 gain to 5%. Despite the S&P 500's rise, declining stocks outnumbered gainers by a 1.5-to-one ratio. Shares of JPMorgan and Wells Fargo climbed over 1%, with Citi rising 2.8% ahead of their quarterly results due on Friday. Tempus AI rose nearly 4% after receiving bullish ratings from major brokerages.

US trading volume was relatively light, with 9.6 billion shares traded compared to an average of 11.6 billion over the previous 20 sessions. The S&P 500 closed at 5,576.98 points, up 0.07%, and the Nasdaq gained 0.14% to 18,429.29 points, while the Dow Jones Industrial Average declined 0.13% to 39,291.97 points.

Forex & Commodities

The US dollar strengthened after Federal Reserve Chair Jerome Powell acknowledged progress in inflation and a cooling job market but did not signal an imminent rate cut. Powell noted that inflation remains above the Fed's 2% target but has been improving. The dollar index rose 0.15% to 105.13, while the euro dipped 0.11% to $1.081. Sterling weakened 0.15% to $1.2785, and the Japanese yen dropped 0.29% to 161.28 per dollar, holding below a recent 38-year high. Bitcoin gained 2.69% to $57,776.

Gold prices edged up 0.2% to $2,363.64 per ounce, with US gold futures also rising 0.2% to $2,367.90, despite a stronger dollar and higher bond yields. Spot silver added 0.1% to $30.80 per ounce, while platinum fell 1.3% to $983.51 and palladium slipped 2.8% to $980.50.

Oil prices fell more than 1% as the impact of Hurricane Beryl lessened, with major refineries along the Gulf Coast sustaining minimal damage. Brent crude settled at $84.66 a barrel, down 1.3%, while US West Texas Intermediate crude dropped 1.1% to $81.41 a barrel. Major Texas oil shipping ports began reopening, and some facilities were ramping up output. Despite Powell's comments indicating a possible nearing of interest rate cuts, oil prices sank further, as a weakening economy could hinder crude demand.

Economic Calendar

• UK RICS Housing Survey (June)
• Reopening of 14-year German government debt auction
• Powell testifies before the House Financial Services Committee
• US Consumer Price Index (June) expected
• Bank of Japan's policy expectations and economic forecasts