Tech Rally Propels Global Stocks; Dollar Declines Ahead of US Inflation Data

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European futures and Asian stocks experienced a notable rise, influenced by a tech sector-led rally ahead of significant US inflation data, which may indicate easing price pressures. The Euro Stoxx 50 contract climbed by 0.2%, driven by gains in the world’s largest tech stocks, pushing global shares to record highs. Concurrently, the dollar declined against major currencies, ahead of the inflation data that could increase the likelihood of Federal Reserve interest-rate cuts, while US stock futures remained steady.

The core Consumer Price Index (CPI), which excludes volatile food and energy costs and is considered a better gauge of underlying inflation, is anticipated to rise by 0.2% in June for the second consecutive month. This rise would be the smallest back-to-back increase since August, a rate seen as acceptable by Federal Reserve officials. Currently, market swaps are pricing in two Fed rate cuts in 2024, with a strong possibility that the first cut could occur in September.

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“June’s CPI report looks to be another ‘very good’ report that should boost the FOMC’s confidence about the inflation trajectory,” said Anna Wong from Bloomberg Economics, adding that this could pave the way for the Fed to start cutting rates in September.

In the Asian markets, Taiwan Semiconductor Manufacturing Co. reached record trading levels after reporting the fastest second-quarter sales growth since 2022. Sony Group Corp., Tencent Holdings Ltd., and Korean chipmaker SK Hynix Inc., which traded at its highest levels since 2000, were among the major contributors to the regional stock index’s rise.

The S&P 500 and Nasdaq 100 both gained over 1% overnight, buoyed by tech giants Nvidia and Apple. Apple announced plans to ship 10% more new devices following a challenging 2023. The S&P 500 has seen gains in each of the past seven sessions, marking its longest winning streak since November.

Meanwhile, Federal Reserve Chair Jerome Powell informed Congress that the Fed does not require inflation to fall below 2% before considering rate cuts, noting that further efforts are still necessary. He acknowledged a significant cooling in the labor market and highlighted ongoing plans for balance-sheet runoff, while asserting that commercial real estate does not pose a threat to financial stability.

“The key takeaway from his testimony is the Fed’s assessment of the balance of risks is shifting in ways that – if supported and sustained by incoming data – will deliver a rate cut in September,” remarked Krishna Guha from Evercore ISI.

Investors are closely monitoring potential impacts from the China Securities Regulatory Commission’s decision to tighten rules on short selling and high-frequency trades, aimed at reducing improper arbitrage and maintaining market stability. Sentiment towards Chinese stocks has deteriorated as the country’s Third Plenum approaches next week.

In other news, the Bank of Korea maintained its benchmark interest rate on Thursday, seeking further evidence of continued cooling inflation. Oil prices climbed for a second day, supported by growing demand and a risk-on sentiment across broader markets, while gold prices advanced for a third consecutive day.

Key events to watch this week include the release of US CPI and initial jobless claims on Thursday, speaking engagements by Fed’s Raphael Bostic and Alberto Musalem on Thursday, China’s trade data on Friday, US PPI and University of Michigan consumer sentiment on Friday, and earnings reports from Citigroup, JPMorgan, and Wells Fargo on Friday.

In the markets, S&P 500 futures showed little movement as of 6:41 a.m. London time. Japan’s Topix rose by 0.9%, Australia’s S&P/ASX 200 increased by 0.9%, Hong Kong’s Hang Seng climbed by 1.7%, and the Shanghai Composite went up by 0.8%. Euro Stoxx 50 futures rose by 0.2%, while Nasdaq 100 futures remained largely unchanged.

In currencies, the Bloomberg Dollar Spot Index showed little change. The euro remained steady at $1.0836, the Japanese yen was mostly stable at 161.71 per dollar, the offshore yuan showed little change at 7.2853 per dollar, the Australian dollar rose by 0.2% to $0.6758, and the British pound remained nearly unchanged at $1.2859.

In the cryptocurrency market, Bitcoin increased by 0.7% to $57,802.29, while Ether fell by 0.2% to $3,089.46.

In bonds, the yield on 10-year Treasuries stayed mostly unchanged at 4.29%. Japan’s 10-year yield remained at 1.080%, and Australia’s 10-year yield increased by four basis points to 4.38%.

In commodities, West Texas Intermediate crude rose by 0.8% to $82.77 a barrel, and spot gold increased by 0.5% to $2,382.45 an ounce.