- An assassination attempt against Trump raised the chances that he would win the November election.
- Investors are fully pricing in the first Fed cut in September.
- The retail sales report on Tuesday revealed no change in June.
Equities rose on Monday as investors priced in a higher likelihood of a Trump win after the attempted murder. At the same time, optimism about rate cuts in the US after Powell’s dovish comments remained.
On Saturday, an assassination attempt against Trump raised the chances that he would win the November election. A Trump win would likely lead to a bull market like it did the last time he was president. Notably, tariffs and company earnings would increase, boosting equities.
Elsewhere, there has been a surge in Fed rate cut bets since last week. The US consumer inflation report on Thursday revealed the first monthly decline in four years. At the same time, the annual figure increased by 3.0%, smaller than the expected 3.1% increase. This confirmed that inflation was on a consistent downtrend. Consequently, it raised the likelihood of a September Fed cut from 73% to 93%.
Market participants were more convinced that the US central bank would cut rates starting in September. Therefore, when the wholesale inflation figures showed an unexpected increase, rate-cut bets had little impact.
Fed rate cut bets (Source: Bloomberg, CME)
Furthermore, Powell struck a dovish tone on Monday. He said recent inflation figures had increased confidence of a sustainable decline to the 2% target. Moreover, he said the Fed might achieve a soft landing, where the economy avoids a recession while inflation drops. This further boosted expectations for a rate cut, with many investors now fully pricing on the first of September. At the same time, they expect the Fed to lower borrowing costs by 68 basis points this year.
Meanwhile, the retail sales report on Tuesday revealed no change in June. Although there was no change, economists had expected a 0.3% drop in sales during the month. Therefore, this was an upbeat report that showed resilience in the economy. Policymakers will continue to monitor incoming data before they take a more solid stand on rate cuts. Notably, several reports remain before the September meeting.
Elsewhere, the US second-quarter earnings season started with Goldman Sachs beating estimates. As a result, shares of the company rose 2.6% on Monday.
