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London,– Stocks were mixed on Tuesday as investors awaited testimony from Federal Reserve Chairman Jerome Powell for clues on possible interest rate cuts amid signs of a cooling U.S. labor market.
The Eurozone Stoxx 600 fell 0.2%, with euro zone blue chips posting similar declines. Energy stocks led the declines, falling 1.2%, following a fall in oil prices. In contrast, Wall Street opened higher, with the S&P 500 and Nasdaq futures both up 0.3%, driven by gains in large technology and semiconductor stocks.
Powell is scheduled to testify before Congress on Tuesday and Wednesday and is expected to assess whether recent signs of cooling inflation and a slowing job market will accelerate the Fed’s plans to cut interest rates. Investors are currently pricing in an 80% chance of a September rate cut due to weak labor market data.
“Fed policy is critical for the U.S., but it’s not the only factor,” said Alexandre Marquis, senior portfolio manager at Unigestion. “Corporate earnings also help to mitigate disappointment with expectations of rate cuts.”
Powell’s testimony shifted investors’ attention away from France, where political deadlock in the euro zone’s second-largest economy has eased concerns about the fiscal impact of policies from the far left or right. France’s leftist leaders emerged top in Sunday’s legislative elections with plans to govern according to their own tax and spending agenda, though they fell short of a majority.
The euro held steady near a four-week high, while euro zone bond yields edged higher ahead of Powell’s testimony. The euro zone’s benchmark German 10-year bond yield rose 1 basis point to 2.53%. The yield gap between French and German bonds, which peaked at 85 basis points in late June amid far-right concerns, has stabilized at 66 basis points.
In Japan, the Nikkei surged 1.96% to a record high, boosted by semiconductor stocks and a weaker yen. MSCI’s broadest index of Asia-Pacific shares outside Japan rose 0.4%, just shy of a two-year high hit the previous day.
An interest rate cut is coming?
U.S. consumer price data due on Thursday will provide further insight into the health of the U.S. economy. Headline inflation is expected to fall to 3.1% in June from 3.3% in May, with core inflation steady at 3.4%. Markets have priced in a 50 basis point rate cut for the remainder of 2024, equivalent to two rate cuts.
The dollar was steady near a four-week low of 105.02 against a basket of currencies. The yen held at 160.87 per dollar, close to a 38-year low of 161.96 hit last week. In the UK, sterling retreated slightly from a one-month high hit on Monday and was last up 0.1% at $1.2817.
Oil prices remained steady after a hurricane in Texas caused less damage than expected. Brent crude futures fell 0.4% to $85.37 a barrel, while U.S. West Texas Intermediate crude rose 2 cents to $82.33 a barrel.
Source: Reuters
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