Written Commentary
STOCK INDEX FUTURES
Global equity markets continue to rise despite evidence of global slowing and hesitant central banks. However, investors have found bullish themes in the chip sector and surprisingly in the US retail sector. While the equity markets seem to be detached from the ebb and flow of the BBB negotiations, we think the markets have already factored in a portion of the tax cut benefits and other stimulative components of the bill. Another investor theme providing ongoing lift to stocks is the sudden focus on data centers and data services to power AI. Certainly, the placement of data centers is controversial as many local power grids will surpass capacity with the addition of power-hungry data centers. In the end, investors continue to “whistle past the graveyard” with several geopolitical trashcan fires being discounted.
CURRENCY FUTURES
While the dollar has not forged a new low for the move this morning prices are hovering just above yesterday’s spike low as if waiting for US scheduled data to plunge to lower lows. In fact, overnight inflation data was very hot from France and Spain and that could temper ECB rate cut hope and in turn provide fresh buying of the Euro and fresh selling of the dollar. Obviously, the technical down trend in the dollar is entrenched with US personal income and spending data today likely to add selling pressure. Some analysts suggest that the US presidents latest berating of the US Federal Reserve Chairman is adding to dollar selling as is the latest complication in the passage of the BBB. Even though the president arbitrarily set the passage deadline of the BBB before Independence Day, the failure to pass the bill next week could result in the dollar spiking to even lower levels.
INTEREST RATE MARKET FUTURES
Despite evidence of slowing in yesterday’s scheduled data, expectations for a July US interest rate cut (as measured by the CME Fed watch tool) declined from 25% to 20%. Therefore, it is not surprising to see the US president criticize the Fed again for its lack of concern for the slowing pace of the US economy. Fortunately for the bull camp yesterday’s seven year treasury note auction saw decent demand with futures prices managing a slight rally following the auction results. However, the Fed admits they are having difficulty modeling the impact of tariffs on the economy especially with the magnitude and duration of tariffs a highly fluid condition. Nonetheless, the bias in treasuries looks to remain up with yesterday’s ultra-strong durable goods report discounted in favor of a noted upside breakout in ongoing claims. Another major underpin of the bull case is yesterday’s GDP contraction of 0.5% which could begin recession chatter. On the other hand, today’s economic reports will present the month over month PCE report with estimates calling for an unchanged or minuscule change of 0.1%.
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