(Bloomberg) — Stock market traders pushed stocks higher while bond yields fell following a series of disappointing economic reports that strengthened the argument for the Federal Reserve to begin cutting rates this year.
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Despite a shortened trading session ahead of the US holiday, the S&P 500 reached a new all-time high as investors bet that lower rates would continue to support Corporate America. Treasury yields rose across the board, and the dollar remained weak after the release of minutes from the June Federal Reserve policy meeting, which indicated officials were divided on the duration of elevated rates and were monitoring inflation trends.
According to Paul Ashworth at Capital Economics, the Fed minutes may already be outdated given recent signs of economic slowdown. Michael Feroli at JPMorgan Chase & Co. described the minutes as “dovish.” There was general consensus that disinflationary pressures were present, the labor market was loosening, and economic growth was expected to slow down.
Prior to the release of the jobs report on Friday, data revealed that the services sector was contracting at its fastest pace in four years, while the labor market showed further signs of cooling.
“Bad news seems to be good news,” said Fawad Razaqzada at City Index and Forex.com. “That’s how risk assets reacted following today’s US data releases.”
Investors remained focused on political developments, particularly Joe Biden’s struggles to maintain his reelection campaign amid increasing pressure. Polls showed Donald Trump’s lead over Biden expanding after the recent debate.
The S&P 500 surpassed 5,535, marking its 33rd record in 2024. Tesla Inc. continued its rally for the seventh consecutive session, leading gains in large-cap stocks, although Amazon.com Inc. experienced a decline. Meanwhile, 10-year Treasury yields fell by seven basis points to 4.36%, and the dollar weakened.
“While there are concerns in the macroeconomic landscape, investors’ optimistic outlook continues to drive market gains,” said Mark Hackett at Nationwide.
At Brown Brothers Harriman & Co., Win Thin and Elias Haddad suggested that if economic data align, a Fed rate cut in September could be highly likely. Swap traders were predicting nearly two rate cuts in 2024, with the first potentially in November, although expectations for a September cut increased.
Economists were anticipating a 190,000 increase in nonfarm payrolls for June, a decrease from the previous month, with the unemployment rate expected to remain at 4%.
“Given other indications of a cooling economic environment, the payroll report could play a significant role in the Fed’s decision to signal a rate cut,” said Quincy Krosby at LPL Financial.
An investor survey conducted by 22V Research showed that 40% of respondents believed the market reaction to Friday’s employment data would be “negligible/mixed,” while 34% anticipated a “risk-on” response, and 26% expected a “risk-off” reaction.
“Investors are closely monitoring the payrolls data,” said Dennis DeBusschere at 22V. “The focus on wage growth has diminished somewhat.”
The 22V survey also indicated a positive bias in assumptions regarding the unemployment rate.
Fed Chair Jerome Powell stated that recent economic data indicated inflation was moving lower, but he emphasized the need for more evidence before considering rate cuts. When asked about his concerns, Powell highlighted the delicate balance between controlling inflation and avoiding significant labor market deterioration.
“As long as employment doesn’t significantly weaken, there is fundamental support for the US economy, despite signs of a slowdown,” said Don Rissmiller at Strategas. “Fed officials have expressed a desire to see more progress on inflation – fortunately, the US economy still appears strong enough to withstand an extended pause in rate hikes. However, time is running out.”
Meanwhile, Fed Bank of New York President John Williams, an expert on the natural rate of interest known as r-star, refuted recent claims that the rate had increased since the pandemic.
The concept of a long-term natural interest rate, which prevails when the economy is stable and growing at its potential, is crucial to monetary policy but cannot be directly observed. Policymakers aim to raise rates above the neutral level to cool the economy and combat inflation.
Corporate Highlights:
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An analysis by doctors at Massachusetts Eye and Ear, a Harvard-affiliated hospital, indicated that Novo Nordisk A/S’ popular diabetes and weight-loss drugs Ozempic and Wegovy may be linked to an increased risk of a rare form of vision loss.
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Paramount Global saw a surge in its stock price after reviving a merger deal with independent film and TV producer Skydance Media.
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Nvidia Corp. CEO Jensen Huang sold shares worth nearly $169 million in June, the most he has ever sold in a single month, driven by high demand for chips used in artificial intelligence.
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Jeff Bezos announced plans to sell an additional 25 million Amazon.com Inc. shares worth $5 billion on the day the stock hit a new high.
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Lyft Inc., operator of the popular Citi Bike program, announced a 20% increase in e-bike rental prices in New York City due to higher-than-expected operating costs.
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Ford Motor Co. reported a drop in sales of its F-Series pickup trucks in the second quarter as the company slowly introduced a redesign of its top-selling model to avoid quality issues and recalls.
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Southwest Airlines Co. implemented a shareholder rights plan to defend against activist firm Elliott Investment Management’s push for a leadership change.
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LL Flooring Holdings Inc. is reportedly considering filing for Chapter 11 bankruptcy, according to sources familiar with the matter.
Key events this week:
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UK general election on Thursday
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US Independence Day holiday on Thursday
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Eurozone retail sales data on Friday
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US jobs report on Friday
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Speech by Fed’s John Williams on Friday
Market movements:
Stocks
Currencies
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The Bloomberg Dollar Spot Index declined by 0.2%
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The euro strengthened by 0.4% to $1.0785
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The British pound rose by 0.4% to $1.2740
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The Japanese yen fell by 0.2% to 161.72 per dollar
Cryptocurrencies
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Bitcoin dropped by 3.6% to $59,706.51
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Ether declined by 4.2% to $3,272.14
Bonds
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The yield on 10-year Treasuries fell by seven basis points to 4.36%
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Germany’s 10-year yield dropped by two basis points to 2.59%
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Britain’s 10-year yield decreased by eight basis points to 4.17%
Commodities
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West Texas Intermediate crude oil rose by 1.1% to $83.72 a barrel
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Spot gold increased by 1.1% to $2,354.66 an ounce
This article was generated with the help of Bloomberg Automation.
— With contributions from John Viljoen, Sujata Rao, and Winnie Hsu.
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