Markets Overview
- ASX SPI 200 futures up 0.4% to 8,650.00
- Dow Average up 0.5% to 44,484.49
- Aussie down 0.6% to 0.6488 per US$
- US 10-year yield little changed at 4.4513%
- Australia 3-year bond yield fell 9.1 bps to 3.42%
- Australia 10-year bond yield fell 5.3 bps to 4.35%
- Gold spot down 0.2% to $3,338.84
- Brent futures up 1.5% to $69.57/bbl
Economic Events
- 11:00: (AU) Australia to Sell A$1.1 Billion 1% 2031 Bonds
Signs that the world’s largest economy is holding up lifted stocks a day after speculation about the fate of Federal Reserve Chair Jerome Powell rattled markets. The dollar climbed. Short-dated bonds fell. The crypto industry got a major win after Congress passed the stablecoin bill.
Economically sensitive shares outperformed after solid retail sales and a drop in jobless claims, with the S&P 500 briefly topping 6,300 and closing at an all-time high. The Russell 2000 gauge of small firms rose 1.2%. Tech gained as a bullish outlook from Taiwan Semiconductor Manufacturing Co. bolstered confidence in artificial-intelligence spending. In late hours, Netflix Inc. reported strong earnings and raised its forecast.
After a brief pause, the greenback resumed its advance for July – which is set to be its best month in 2025. Treasury two-year yields rose while those on 30-year bonds were little changed. Money markets continued to price fewer than two Fed rate cuts this year.
US retail sales saw a broad advance in June, tempering concerns about a retrenchment in consumer spending. Meantime, applications for US unemployment benefits declined for a fifth straight week to the lowest since mid-April, showing a resilient job market.
“As long as the economy continues to expand and unemployment remains low, then people will continue to spend and the flywheel can keep generating higher profits, which is the engine for higher stock prices,” said Chris Zaccarelli at Northlight Asset Management.
To Jamie Cox at Harris Financial Group, consumers seem to be over the tariff shock in April and are back at it with spending.
“Now we just need to see if the Federal Reserve has enough inflation data to communicate more clearly that September will restart the rate cutting cycle,” he said.
“The consumer came back to life in June. Other data like initial jobless claims and Philly Fed also painted the picture of a strong economy,” said David Russell at TradeStation. “While it’s good for growth overall, it makes it harder to justify rate cuts.”
Fed Bank of San Francisco President Mary Daly said it’s reasonable for policymakers to plan on two rate cuts this year, emphasizing that the central bank should not wait too long before moving. Meantime, Fed Governor Adriana Kugler said officials should keep holding rates steady “for some time,” citing accelerating inflation as tariffs start to boost prices.
The value of retail purchases, not adjusted for inflation, increased 0.6% in June after declines in the prior two months. Meantime, the control-group sales — which feed into the government’s calculation of goods spending for gross domestic product — rose 0.5%, rounding out the first half of the year on a strong note.
To Neil Dutta at Renaissance Macro Research, while retail sales beat estimates, enthusiasm ought to be tempered somewhat given the pick-up in consumer goods prices over the month.
At Bloomberg Economics, Estelle Ou says that given price increases in several goods categories, it’s difficult to untangle whether most of the rebound is due to price increases or solid underlying demand. She thinks the former is more likely, given low business sentiment and signs of weakness in other discretionary services spending.
“A reassuring retail sales result comes at the perfect time as earnings season kicks into gear,” said Bret Kenwell at eToro. “In the last earnings go-around, management reassured investors that consumer trends were solid through April and May. However, there was a worry that consumer spending was beginning to weaken after back-to-back declines in retail sales.”
If earnings are more upbeat than expected and if management continues to tell a reassuring story about consumer spending, stocks could react favorably — even after a rally to record highs that some investors may view as overextended, Kenwell noted.
“If tariffs start to weigh on consumer spending in the months ahead, that could present risks in the second half of the year,” he said. “For now though, consumers are still spending — and stocks can continue to rally, particularly if earnings reflect continued underlying strength in America’s largest engine: the consumer.”
Morgan Stanley’s Mike Wilson says he sees a bull market building in stocks. But first the S&P 500 may drop 5% to 10% this quarter as the impact of trade policies gets reflected on corporate balance sheets. He thinks the decline will be short lived, giving investors an attractive entry point to a rally driven by improving earnings expectations.
Relative calm prevailed a day after markets were jolted by speculation over Powell’s future before President Donald Trump downplayed the prospect of replacing him.
Still, George Saravelos at Deutsche Bank AG says concern about the Fed chairman being removed will continue to linger over markets and put pressure on the dollar and Treasuries until it is resolved.
Saravelos said this month that, if Trump were to force Powell out, the subsequent 24 hours would probably see a drop of at least 3% to 4% in the trade-weighted dollar, as well as a 30 to 40 basis point fixed-income selloff.
The idea that the Fed operates free from political pressures is a “myth” and US stocks are likely to keep soaring on bets that rate cuts are coming, according to JPMorgan Chase & Co.’s Ilan Benhamou.
Kevin Warsh, a candidate to be the next Fed chair, said independence for the central bank is “essential.” But, he added, the Fed under Powell has strayed into policy areas where it lacks authority.
“History tells us that the independent operations in the conduct of monetary policy is essential,” Warsh said Thursday in an interview on CNBC. “But that doesn’t mean the Fed is independent in everything else it does.”
