Market Commentary: Wednesday 10th July

Overnight the Reserve Bank of New Zealand held interest rates steady, and the statement was dovish. In China, the consumer prices rose 0.2% for June, hovering near zero for a fifth month. This is suggesting that deflationary pressures continue to impede an economic recovery. However, the main event was in the US - the S&P 500 climbed for a sixth consecutive session, its longest positive streak since January. Jerome Powell in his testimony was careful not to offer a timeline for rate cuts in, but emphasized mounting signs of a cooling job market after government data showed a third straight month of rising unemployment. He also mentioned that regulators are close to agreeing to change their plan to force big banks to hold significantly more capital. The overhaul is tied to Basel III, an international accord that followed the 2008 financial crisis, and is intended to prevent bank failures and another crunch.

As for the day ahead, domestically we have speeches from Huw Pill, the BoE chief economist. The Bank of England has not been able to communicate since the UK’s general election was called back on May 23. It will now need to get back to guiding markets as to its likely intensions. The market currently has 15bp of cut priced for the Aug. 1 MPC. The August policy meeting also carries the next Monetary Policy Report. The last, published in May, showed that the BoE would undershoot its inflation target if rates followed the market implied path. So, whether or not it cuts in August, the general message could be dovish.

Marketwise, the yield on 10-year Treasuries was little changed at 4.30%, Bitcoin rose another 2.2% to $59,181.92, Ether rose 1.4% to $3,113.83, West Texas Intermediate crude fell 0.2% to $81.21 a barrel, and spot gold rose 0.2% to $2,368.76 an ounce. Datawise we are 'light', yet speaking heavy - Jerome Powell testifies to the House Financial Services Committee, and we hear from the Fed’s Austan Goolsbee, Michelle Bowman and Lisa Cook.


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