US Open Note – Stocks sluggish at highs and dollar returns to yesterday’s levels

Stocks ease a tad ahead of Fed Chairman Powell’s upcoming comments

The poker face of the Chairman of the Federal Reserve seems to still have markets convinced that inflation is transitory, after delivering rhetoric of a cautious but dovish nature yesterday in his remarks. Nonetheless, the Fed’s goal of stronger employment is clear as are their enduring asset purchases. That said, the FOMC debate around asset-purchases will intensify moving into the year as the US economy grows stronger. It remains to be seen whether Fed Powell’s second shot at a firmer message to markets is disseminated today, regarding future bond buying talks and a tapering timeline.

Stocks appeared sluggish around their highs ahead of Powell’s upcoming part two of his testimony scheduled for 13:30 GMT, while the dollar index has recouped most of yesterday’s drop, peeking back above the 92.50 barrier. The euro was on the back foot but managed to hold above the $1.1800 level, as the safe haven USD/CHF pair rose by a half of a cent to 0.9170 on dollar gains.

US initial jobless claims were lower than the previous week’s revised number of 386K, matching the 360K market expectations, a positive for labour supply bottlenecks. Despite import prices for June lagging a bit m/m and factory growth in Philadelphia being at a 7-month low of 21.9, its manufacturing sector is still growing. Business activity also is robust as the Empire State manufacturing index accelerated to 43.0 in July, way above expectations of 18.0, signalling optimistic conditions of growing orders and employment.

UK under spotlight ahead of reopening

Although the UK’s unemployment rate ticked slightly above expectations to 4.8%, a stronger average earnings index number of 7.3% highlighted labour induced inflation. The pound was boosted further by a larger drop in the number of people (-114.8K versus forecast of -32.5K) requesting unemployment benefits. In spite of this, sterling could remain heavy due to concerns about the reopening in a couple of days. The pound is trading slightly beneath the $1.3900 handle. The EUR/GBP pair dipped half a cent to around 0.8500 after the upbeat figures.

Oil rumours around supply deal keep it heavy

The drop in US oil inventories is suggesting global demand remains upbeat even as the delta variant travels amongst recovering economies. That said, further delays in an OPEC-deadlock over boosting supply could result in a prolonged underpinning effect in fuel prices, even if increased production is given the green light, as raising production officially will delay reaching markets. A deeper retracement in WTI oil futures has dipped the price of the commodity below the $72.00 per barrel mark, following yesterday’s inventory print. As things stand, the black liquid could regain its buoyancy sooner rather than later.

Gold remains curbed by its 200-day SMA around the $1,830/oz level after the Federal Reserve chief’s dovish tone yesterday.

US factory output data m/m and the capacity utilisation rate are scheduled at 13:15 GMT.

At 13:30 GMT Fed Chairman Powell will be speaking before the Senate Banking Committee, while at 15:00 GMT FOMC Member Evans is due.

Then New Zealand’s business manufacturing index is expected at 22:30 GMT, followed by the country’s quarterly CPI figures at 22:45 GMT.

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