• US stocks rally after Chairman Powell’s comments

• Focus on key US data today ahead of Thursday’s bank holiday

• Dovish ECB commentary to keep euro under pressure

• Dollar/yen rally continues

The ECB-dominated forum held in Sintra, Portugal, managed to produce market-moving headlines for the Fed. Chairman Powell’s comment that “we are back in a disinflationary environment” resulted in a strong rally in the US equities. Both the S&P 500 and Nasdaq indices recorded new all-time highs led by technology stocks, but not Nvidia, which has already recorded an impressive price jump in 2024.

Chairman Powell’s comment that “we are back in a disinflationary environment” resulted in a strong rally in the US equities

This equities’ reaction was interesting as (a) Chairman Powell’s speech was not as dovish as the disinflationary comment since he highlighted the need for more progress on inflation and (b) the market showed unexpected sensitivity to dovish commentary, even though it has been consistently ignoring hawkish commentary or stronger data releases. This eagerness to get lower Fed rates is understandable, but it also raises the possibility of a strong correction if this week’s data fail to appease the market.

With the US celebrating its Independence Day tomorrow and enjoying a rare mid-week bank holiday, the data calendar is pretty full today. The ADP employment change, the weekly jobless claims and the Challenger job cuts are probably the best appetizer for Friday’s non-farm payroll figures. In addition, the final print of the ISM Services survey and the factory orders data could provide further evidence of a slowdown in the US economy and support the expectations for a September rate cut.

In the meantime, speculation about President Biden’s possible withdrawal from the November election continues with the top US pollsters already measuring up the likely replacements. Vice president Kamala Harris and Michelle Obama feature in the shortlist with the latter possibly being the Democrats’ best bet of winning Donald Trump.

Speculation about President Biden’s possible withdrawal from the November election continues

A plethora of ECB speakers will be on the wires again today, including President Lagarde and uber dove Knot, with the euro managing to easily digest yesterday’s barrage of dovish commentary. The ECB doves are desperately trying to lay the path for another rate cut in September, but most ECB hawks remain adamant that significant progress has to be made to justify such a decision. Lagarde is trying to find the balance between the two sides, but her role will increasingly become tougher, especially if data does not gradually weaken further.

The euro managed to easily digest yesterday’s barrage of dovish commentary

In the meantime, France is preparing for Sunday’s second round of the parliamentary elections. Monday’s positive reaction in most European stock markets was probably premature since Le Pen’s National Rally party could still gain the majority in the parliament and make President Macron’s life difficult for the next three years. The effort from both the left-wing New Frontier party and Macron’s alliance to support common candidates in the second round is not progressing well as centrist candidates are not overly fond of supporting members of ultra left parties.

Dollar/yen continues its journey north, testing the BoJ’s patience, as data disappoints again. Similarly to China’s results, the June PMI Services survey from Japan dropped to the lowest point since April 2022. Should next week’s data calendar, which includes average cash earnings and producer prices index figures, disappoint the BoJ will probably have to abandon any thoughts of adopting a more hawkish stance at the July 31 meeting.