MSCI’s global equities index fluctuated within a narrow range on Tuesday while the benchmark U.S. 10-year yield edged higher. This came after Federal Reserve Chair Jerome Powell suggested that more positive economic data could bolster the case for rate cuts, though he provided no specifics on the timing.
Powell’s remarks highlighted growing confidence that inflation would align with the Fed’s target, while also warning of risks to the job market and the broader economy if interest rates remain elevated for too long. However, he refrained from giving any concrete signals about the timing of potential rate cuts during the first day of his two-day testimony before Congress.
Despite the mixed signals, Wall Street’s major indexes managed to stay afloat, though they fell short of their session highs, and bond yields climbed.
“Powell is beginning to prepare the market for a rate cut, but the exact timing remains uncertain,” noted Brian Jacobsen, chief economist at Annex Wealth Management. “He emphasized the need for more data, but the extent of that data requirement is unclear.”
Traders are now pricing in a roughly 70% chance of the Fed’s first rate cut in September, down slightly from 71% on Monday, according to CME Group’s FedWatch tool. At 2:52 p.m. ET, the Dow Jones Industrial Average had fallen 60.58 points, or 0.15%, to 39,284.21, while the S&P 500 edged up 4.64 points, or 0.08%, to 5,577.49, and the Nasdaq Composite rose 17.52 points, or 0.10%, to 18,421.26.
This follows Monday’s record close for the S&P 500, marking its fourth consecutive record close, and the Nasdaq’s fifth straight record close.
MSCI’s gauge of global stocks was down 0.03% to 817.90, and Europe’s STOXX 600 index closed 0.9% lower.
Investors are in a holding pattern ahead of Thursday’s consumer price report, hoping for further signs of easing inflation that might prompt the Fed to adopt a more accommodative stance. June’s headline inflation is expected to decelerate to 3.1%, down from 3.3% in May, with core inflation remaining steady at 3.4%.
Benchmark 10-year Treasury yields rose following Powell’s comments, with the yield on 10-year notes increasing by 3.5 basis points to 4.304%, and the 30-year bond yield climbing 3.9 basis points to 4.4975%. The 2-year note yield, which closely aligns with interest rate expectations, rose 1.5 basis points to 4.6326%.
In currency markets, the dollar strengthened as Powell did not explicitly indicate that a rate cut was imminent, despite acknowledging progress on inflation. Adam Button, chief currency analyst at Forexlive in Toronto, remarked, “Some market participants were hoping for a clearer signal towards rate cuts later this year. When Powell did not provide that, we saw some U.S. dollar buying and a bit of disappointment in stocks.”
The dollar index, which measures the greenback against a basket of currencies, rose 0.15% to 105.13. The euro slipped 0.1% to $1.0811, while the dollar gained 0.3% against the Japanese yen, reaching 161.3.
Oil prices dipped on Tuesday after Hurricane Beryl caused less damage than anticipated in a key U.S. oil-producing region in Texas, alleviating concerns over supply disruptions. U.S. crude fell 1.12% or 92 cents to settle at $81.41 a barrel, and Brent crude dropped 1.27% or $1.09 to finish at $84.66 per barrel.
Gold prices were volatile, with spot gold rising 0.23% to trade at $2,364.12 an ounce after an earlier decline.
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