ORLANDO, Florida, July 16 (Reuters) – U.S. bond yields fell on Wednesday after another snapshot of U.S. inflation in June came in softer than expected, easing pressure on the Federal Reserve to raise interest rates, while strong profits and potential M&A activity also supported stocks.
In my column today, I look at why Fed Chair Kevin Warsh can’t afford to get complacent on inflation, despite the downside surprises in June’s CPI data.
If you have more time to read, here are a few articles I recommend to help you make sense of what happened in markets today.
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U.S. producer prices post largest drop in 14 months; inflation risks still tilted to the upside
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China’s Q2 economic growth cools to 3-1/2-year low as imbalances worsen
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China’s latest “shock”, German auto pain and the euro/yuan pressure cooker: Mike Dolan
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Dimon-led JPMorgan poised to become world’s first $1 trillion bank
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EXCLUSIVE-Stripe, Advent offer to buy PayPal for more than $53 billion, sources say
Today’s Key Market Moves
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STOCKS: Japan +1.5%, Europe and UK little changed. S&P 500 +0.4%, Nasdaq +0.6%.
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SECTORS/SHARES: U.S. financials at new high, comms services +2.8%, utilities -1%. PayPal +17%, BlackRock +7%. Dell -10%, SpaceX falls below IPO price.
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FX: Dollar -0.4%, sterling biggest G10 gainer +1%. Canadian dollar 4-week high.
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BONDS: U.S. yields fall, curves bull steepen. Again. 2s/30s curve out to 95 bps, steepest in six weeks.
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COMMODITIES/METALS: Oil settles slightly higher in choppy trade.
Today’s Talking Points
* China crisis?
The latest official economic data from China shows why Beijing is putting such reliance on exports. Domestic investment and lending in June fell well short of expectations, suggesting the country’s deleveraging is far from over. Q2 GDP was a big miss — growth slowed to 4.3% from 5.0%, the slowest pace in more than three years.
Were it not for strong exports, especially chips and autos, the broader growth outlook would be even bleaker. Should Beijing be doing more to fire up domestic demand, like slashing interest rates or launching large-scale fiscal stimulus? If the economic malaise continues, it may have to.
* U.S. banks in fine fettle
Most of the big U.S. banks have reported Q2 earnings, and it’s safe to say Wall Street is in rude health. Combined net income from five banks — JPMorgan, Goldman, Citi, BofA and Morgan Stanley — topped $50 billion in the April-June period, driven by strong trading, IPO underwriting and dealmaking.
The big asset managers are in good shape too, with BlackRock’s AUM surging to a record $15 trillion. Little wonder U.S. financials are ripping higher, now up 20% from the March low to a fresh record high on Wednesday.
* TICking the box
Foreigners can’t stay away from U.S. stocks and bonds. The latest U.S. Treasury International Capital (TIC) flows data show net foreign purchases of U.S. assets in May totaled $232.7 billion, more than double April’s figure and the third-highest month on record.
About half of that flowed into equities, and once again, private sector investors accounted for almost all overseas demand for U.S. assets. Tech sector tremors wobbled Wall Street in June, so it will be interesting to see if that affected foreign demand. On the whole, though, nobody wants to be missing out on the U.S. AI-driven rally.
What could move markets tomorrow?
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TSMC earnings (Q2)
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South Korea interest rate decision
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U.S. Philly Fed business index (July)
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U.S. Federal Reserve officials scheduled to speak include Dallas Fed President Lorie Logan, Kansas City Fed President Jeffrey Schmid, and Vice Chair Philip Jefferson
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U.S. earnings
Opinions expressed are those of the author. They do not reflect the views of Reuters News, which, under the Trust Principles, is committed to integrity, independence, and freedom from bias.
Reporting by Jamie McGeever; Editing by Nia Williams.
