Wall Street is showing relatively little change for the time being this Tuesday. The S&P 500 is up 0.03% to 5,476 points, while the Dow Jones is down 0.1% to 39,130 points. The Nasdaq is up 0.19% to 17,913 points, while Tesla is on fire for the second session. On the Nymex, the barrel of WTI crude is down 0.1% to $83.4. The ounce of gold is down 0.2% to $2,335. The dollar index is stabilizing against a basket of reference currencies. Caution prevails, while the indices remain close to their historic highs.
Fed Chairman Jerome Powell spoke today at an ECB forum on monetary policy. He declined to answer a question about whether monetary policy could be eased as early as September. However, he said that action should not be taken too quickly, or too late (!). He said that “we are back on the path to disinflation,” with recent data encouraging, but more evidence would still be needed before rates are cut.
According to the CME Group’s FedWatch tool, the current probability of a Fed rate cut on July 31, at the next monetary policy meeting, is virtually zero (8.8%). The hypothesis of a first easing in September is favored, with the FedWatch tool showing a 63.2% probability of a range of 5-5.25% on September 18 on the fed funds rate, which would represent a quarter-point easing. The tool instead points to a range of 4.75 to 5% by year-end, which would reflect two rate cuts.
Powell also explained that inflation in services is more stubborn, linked to wages. He notes, however, that the labor market is easing and therefore presents less of a problem for inflation. He anticipates a return of inflation to the 2% target, perhaps late next year or more likely in 2026.
He notes that the pessimistic forecasts about a possible hard landing have not come to pass. He sees a gradual decline in demand in the labor market and a weakening of other markets such as housing. In any case, the labor market and growth remain strong, Powell notes. He points to the Fed’s dual mandate and thus indicates that it is not a question of acting too quickly or keeping rates too high for too long. The Fed is fully aware of the risks in both cases, which explains its constant search for the right balance.
ECB’s Christine Lagarde was a bit more confident about inflation, but also stressed that monetary decisions would depend on the data, in order to ensure that the easing that had just begun could be continued. The ECB leader declined, however, to comment on the political situations of certain nations such as France, recalling the independence of the central bank…
Powell also seems to share this view, affirming the independence of the Fed, as the November election looms in the US. Asked about a possible intervention by Donald Trump – if he were elected – to put pressure on the Fed for a faster easing of policy, the head of the American central bank did not seem moved. “Let’s do our job,” Powell said, emphasizing the “very high independence of the Fed”. On the question of a possible increase in deficits in the event of Trump’s election, Powell also appeared detached from these partisan considerations. In the long term, however, he believes that something will have to be done for public finances.
Asked about the neutral rate and its possible evolution, Powell also deflects the issue. He notes that many observers do not anticipate a return to a neutral rate as low as before, but he also quickly adds that no one really knows how things will evolve. He emphasizes the need for gradual evolutions to achieve the dual mandate of the Fed. However, it is extremely difficult to predict a neutral rate in the long term, Powell suggests.
On generative AI and its impact on the economy, Powell believes that it is too early to determine and that it is not the role of the central bank. The Fed, unlike the ECB, does not use generative artificial intelligence, but it is closely following developments on this subject.
On the “biggest risk to the economy,” Powell points to “cyber risk,” but also, at present, finding the best balance to fulfill the Fed’s dual mandate. On the economic outlook for a year, Powell believes he would be happy if unemployment remained around 4%, its current level.
U.S. job openings for May 2024 came in at 8.14 million, according to the Labor Department, compared with a FactSet consensus of 7.9 million and a revised reading of 7.92 million about a month earlier.
Tomorrow, investors will be following the Challenger, Gray & Christmas study on layoff announcements, the ADP report on private employment, as well as the balance of international trade in goods and services and the final US composite PMI index. The ISM services and industrial orders are expected the same day. The FOMC Minutes will be published in the evening.
Finally, on Friday, operators will follow the monthly government report on the employment situation in the United States for the month of June (FactSet consensus: 190,000 job creations for a 4% unemployment rate).
At the same time, S&P is warning some major nations about their management. The agency is unlikely to see the United States, France and the major economies halt the rise in their debt levels in the coming years. S&P Global estimates that for the United States, Italy and France, the primary balance would have to improve by more than 2% of combined GDP for their debt to stabilise. “This is unlikely to happen in the next three years,” S&P says. “In our view, only a sharp deterioration in borrowing conditions could persuade G7 governments to implement more resolute fiscal consolidation at this stage of their electoral cycle,” S&P Global adds.
Among the quarterly financial releases on Wall Street this week, Constellation Brands reports tomorrow, but the schedule is otherwise fairly sparse.
Values
Tesla (+8.5%!), which had already gained more than 6% yesterday on Wall Street on speculation about a possible “robotaxi”, is still on fire today. The group has indeed exceeded expectations in terms of deliveries for the quarter ending in June. For the period, Tesla produced approximately 411,000 vehicles and delivered nearly 444,000. In addition, the group deployed 9.4 GWh of energy storage products in the second quarter, the highest quarterly deployment to date.
In detail, the Texan group produced 386,576 units of the Model 3 and Y in the quarter ended and delivered 422,405 units. The production of other models represents 24,255 units, while deliveries were 21,551. In total, Elon Musk’s group produced 410,831 units and delivered 443,956. The consensus was around 438,000 units delivered according to Bloomberg. In any case, deliveries still fell by 4.8% compared to last year, a second quarter of decline with increased competition and pressure on prices, particularly in China. Deliveries are up 14.8% compared to the previous quarter… Tesla will publish its full quarterly financial results after the close on July 23.
Apple (+1%) has reportedly increased its chip orders, suggesting increased demand for the iPhone 16 according to Apple Insider. The Californian group with the apple has therefore increased its chip orders from TSMC, which is apparently placing iPhone 16 and iPhone 16 Pro models on the A18 chip. The introduction of Apple Intelligence at the recent WWDC developer conference may have helped to strengthen demand for the iPhone 16, adds Apple Insider. The Cupertino group could change its chip strategy accordingly… With the increase in orders in place with partner TSMC, Apple would be preparing to sell between 90 and 100 million units of iPhone 16, claims Apple Insider, which cites information from sources in Taiwan’s Commercial Times. The Pro and non-Pro models of the iPhone 16 would therefore use, for at least some, processors from the A18 family which would make the models capable of using Apple Intelligence.
Paramount (+3%). Barry Diller is also reportedly considering a bid to take control of Paramount, according to the New York Times. Mr. Diller, a pioneer of digital media, lost a bidding war for Paramount Pictures several decades ago, the NYT recalls. This time, he is reportedly going after its parent company National Amusements. The billionaire is thus considering a bid to take control of Paramount, the parent company of CBS, MTV and Nickelodeon. The NYT cites four people familiar with the matter. Diller’s digital media conglomerate, IAC, is said to have signed confidentiality agreements with National Amusements, Paramount’s majority shareholder. Diller’s interest in Paramount is a new twist in this matter. Paramount was previously on the verge of concluding an agreement in recent months with Skydance, a Hollywood studio, before negotiations abruptly collapsed.
Polestar (-8%), the Swedish electric vehicle designer, announced that it would have to take measures to compensate for the heavy import duties from the EU and the United States on its electric cars manufactured in China. For its first quarter, the group also posted an operating loss. The group controlled by the Chinese company Geely, which currently designs all of its vehicles in China, will adapt to the customs tariffs by producing its new model, the Polestar 3, in the United States by the end of the summer. The Polestar 4 will then be produced in South Korea from the second quarter of 2025. For the quarter ended, the group deplored an operating loss of 232 million dollars, while its revenues fell to 345 million dollars against 543 million a year earlier.
