- Shares of major tech companies, including Apple, Amazon, and Microsoft, closed with gains of over 2% each.
- US manufacturing business activity fell further, with the PMI dropping from 48.7 to 48.5 in June.
- Market participants will pay close attention to Powell’s speech on Tuesday.
Equities rose on Monday due to a boost from technology stocks. At the same time, investors were preparing for major US economic reports shaping the outlook for rate cuts. Meanwhile, data from the US painted a picture of a weaker economy that could pressure the Fed to start implementing rate cuts.
Shares of major tech companies, including Apple, Amazon, and Microsoft, closed with gains of over 2% each, boosting the Nasdaq. However, trading was thin ahead of Thursday’s US Independence Day holiday.
US manufacturing business activity (ISM)
The US released data on Monday showing another month of contraction in the manufacturing sector. Business activity fell further, with the PMI dropping from 48.7 to 48.5 in June. This came as a surprise since economists had forecasted an increase to 49.2. This decline highlighted the cracks in the economy arising from high borrowing costs.
Recent data has consistently shown weaker demand and easing inflation, supporting the outlook for two rate cuts this year. Moreover, investors expect the first cut in September. However, the Fed has forecasted only one rate cut this year. At the same time, policymakers have remained cautious in their speeches. Although they agree that inflation is easing, officials have failed to give clear guidance on the rate cut outlook.
Notably, Fed’s John Williams said on Monday that inflation was falling back to the central bank’s target. However, he did not comment on the future of policy.
Consequently, market participants will pay close attention to Powell’s speech on Tuesday. Investors will be disappointed if Powell fails to give any clues on the outlook for rate cuts. On the other hand, there will be relief if he acknowledges the recent progress in inflation and assumes a more dovish tone.
Furthermore, traders will watch several major employment releases from the US, including job vacancies, private employment and nonfarm payrolls. The performance of the labor market plays a big role in shaping the Fed’s policy. Weakness in this sector could prompt the Fed to start lowering borrowing costs in September. On the other hand, resilience will solidify the Fed’s current stance of caution, weighing on equities.
Additionally, the FOMC meeting minutes, due on Wednesday, might contain clues on the future path of monetary policy.
