By Lorcan Roche Kelly
Fed Chairman Jerome Powell is in the Senate today for his second day of congressional testimony, scheduled to begin at 10:00 a.m. Eastern Time. His prepared statement given to the House yesterday was seen by markets as all but confirming a rate cut at the July 30-31 monetary policy meeting. He was viewed as so dovish that the conversation has moved on from whether there will be a cut to how much the Fed will cut, with some looking to a 50 basis point reduction. The move would be a boon for emerging market central banks who could ease policy without risking capital flight.
The U.K. Navy was forced to intervene to stop Iranian vessels from blocking a BP Plc-operated oil tanker from leaving the Persian Gulf, according to a British government statement. Iran denied it tried to impede the vessel, even after its military vowed retaliation after the U.K. seized an oil tanker loaded with Iranian crude off the coast of Gibraltar last week. Needless to say, this is making oil investors more nervous, with crude rising to a seven-week high as the standoff adds to worry over output halts in the Gulf of Mexico due to Storm Barry.
The Bank of England’s financial stability report this morning warned that the likelihood of a no-deal Brexit has risen, and it could cause material economic disruption to the U.K. In the euro-area, there was some good news for the European Central Bank ahead of the publication of the account of its latest monetary policy meeting at 6:30 a.m. when German inflation for June was revised higher to 1.5%. The bank’s next policy announcement is on July 25, just days before the Fed is expected to cut.
Overnight the MSCI Asia Pacific Index climbed 0.8% while Japan’s Topix index closed 0.5% higher as investors in the region reacted to Powell’s dovishness. It’s a similar story in Europe where the Stoxx 600 Index had gained 0.3% by 5:50 a.m. in a broad-based advance. S&P 500 futures pointed to an open above 3,000, the 10-year Treasury yield was at 2.053% and gold added to yesterday’s gains.
Very full calendar today with U.S. inflation for June expected to show a slowdown when the data is published at 8:30 a.m. Weekly jobless claims are due at the same time. The WASDE report is published at 12:00 p.m. and the U.S. June budget statement is at 2:00 p.m. Jerome Powell is far from the only Fed speaker we have today with Federal Reserve Bank of New York President John Williams, Federal Reserve Bank of Atlanta President Raphael Bostic, Federal Reserve Bank of Richmond President Thomas Barkin, Federal Reserve Vice Chairman for Supervision Randal Quarles and Minneapolis Fed President Neel Kashkari all sharing their opinions at various events.