(Reuters) – A look at what’s next for U.S. and global markets, by Mike Dolan
Federal Reserve Chairman Jerome Powell managed to calm some tensions in bond markets on Tuesday, helping Wall Street stocks return to record highs as a series of labor market surveys are expected before the July 4 recess.
As the Nasdaq hit new records and the S&P 500 closed above 5,500 for the first time, Tesla stole the show, rising 10% to its highest level since January after reporting a smaller-than-expected 5% drop in second-quarter vehicle deliveries.
Shares of the auto giant, the only stock in the so-called “Magnificent Seven” U.S. mega-caps still in the red this year, rose a further 3% before the bell on Wednesday.
US Treasuries, which had been hit earlier this week by mounting bets over Donald Trump’s return to the White House and the fiscal implications of his campaign promises, have calmed somewhat since Powell spoke in Portugal on Tuesday.
Ten-year yields have retreated to 4.43% from highs near 4.5% hit on Monday, when betting markets raised former President Trump’s chances of beating current President Joe Biden in November to more than 60% after Biden’s dismal performance in last week’s televised debate.
As a result, US Treasury yield curves, which were still inverted, had steepened in the new week, and the New York Federal Reserve’s estimate of the 10-year premium demanded by investors to hold long-term government debt turned positive again for only the third time this year.
While not yet signaling any rush to cut interest rates, Powell offered markets some encouraging signals by saying the US is back on a “disinflationary path.”
Part of their discussion was how the Fed needs to strike a balance between supporting the economy and controlling inflation, something relevant in a week that saw more signs of cooling growth and critical labor market readings.
However, an unexpected jump in U.S. job openings in May was a bit off-script, even though it is a month older than most of this week’s employment reports.
ADP private sector employment data for June, weekly jobless claims and layoffs data for June will be released on Wednesday, along with last month’s service sector surveys as well.
And all this precedes the publication of the minutes of the Federal Reserve’s latest monetary policy meeting.
The flood of data comes at a time when transactions are expected to slow ahead of the holiday on Thursday.
Wall Street futures were flat before the open and the dollar index eased slightly, especially against the euro and the pound, as British and French elections play out over the rest of the week.
With tactical voting and positioning in Sunday’s second round of French Assembly elections set to prevent an outright majority for the far right, French government debt premiums over Germany have fallen below 70 basis points for the first time since mid-June.
However, in Asia it was a different story: the dollar hit new 38-year highs just below 162 Japanese yen (with no intervention by Japanese authorities yet) and 2024 highs against the Chinese yuan.
The latter was hit by a surprisingly weak services sector survey in June, which also weighed on mainland Chinese stocks, which are now up less than 1% so far this year.
Key developments that should provide further direction to US markets later on Tuesday:
* ADP June U.S. Private Sector Employment Report, Weekly Jobless Claims, June Challenger Layoffs, June ISM and S&P Global Services Sector Survey, May Factory Goods Orders, May International Trade Balance; May Canada Trade Balance
* The Federal Reserve publishes the minutes of its latest monetary policy meeting; New York Fed President John Williams, European Central Bank President Christine Lagarde and ECB Chief Economist Philip Lane speak at the ECB’s annual forum in Sintra, Portugal
* US Corporate Earnings: Constellation Brands
* 4-week US Treasury bill auction
(By Mike Dolan, edited by XXXX mike.dolan@thomsonreuters.com)