Equities Continue to Grind Out Gains

STOCK INDEX FUTURES

The equity markets continue to grind out gains despite many lingering bearish geopolitical issues and further confirmation that the Fed is not ready to support the US economy. In fact, expectations for a July 30th rate cut sit just under 25% and the markets continue to hope for a stimulative boost from the Big, Beautiful, Bill and apparently see the US bombing of Iran as a reduction in the Iran’s capacity to finance terrorism and launch a nuclear attack (in the near-term). However, the stock market appears to be regaining optimism toward the tech sector and from talk of a possible renewed global chip shortage. Therefore, it is not surprising to see the NASDAQ futures nearing record high territory from positive Nvidia share buzz. Evidence of the newfound optimism toward tech comes from Nvidia shares posting a record high. In fact, analysts have predicted AI is poised for another “Golden Wave” ahead. Another positive force is renewed takeover chatter with a $36 billion buyout in the candy sector given US antitrust approval. However, the original big tech shares like Google, Microsoft, and Meta are continuing to battle EU and UK regulators.

CURRENCY FUTURES

The dollar remains in a technical and fundamental downward track with a clear trend of US slowing evidence and a lack of flight to quality interest. Like the gold market, dollar bulls should be very discouraged by the lack of strength in the face of the US bombing of Iran last weekend. While seeing the US Federal Reserve on hold would typically support the dollar, evidence of slowing US growth is mounting, and the US economy is thought to be especially vulnerable with the Fed focused on inflation and not waning growth. Certainly, slowing evidence is surfacing in Europe and to a lesser degree in the UK but the dollar looks to remain fundamentally out-of-favor from a macroeconomic growth rate differential. In fact, we see a downside extension today if ongoing claims come in above 1.95 million again and US GDP posts another contraction. Therefore, the dollar downtrend is solid with several foreign currencies (just not the Canadian) displaying noted strength in unison. Using weekly charts, the Dollar Index next downside target is 90 ticks below today’s early trade.

INTEREST RATE MARKET FUTURES

With a former Dallas Fed Pres. suggesting the US Fed is falling behind the curve, a seven month low in US new home sales and a trade largely embracing steady to lower inflation, the overnight upside breakout in treasury bonds is fundamentally justified. However, today’s US durable goods report is expected to “bounce back” from a sharp decline last month with a gain of 8.5% and that could prompt a temporary setback in Treasury prices. Certainly, today’s initial and continuing claims data will have a noted impact on prices with recent upside breakouts in those data points likely to favor the bull camp. On the other hand, with the Fed Chairman (and a declining amount of hawkish voting Fed members) focused on inflation today’s quarterly PCE report should take on added importance. Unfortunately for the bull camp expectations call for no change in the quarterly PCE, which leaves inflation views in the market largely unchanged. Keep in mind, the Fed wants clear evidence of declining inflation to buttress against the potential upward pressure in prices possible from entrenched tariffs. It should be noted that the Fed is still on the fence about the impact of tariffs on inflation.

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