We won't bury the lead. The stock market remains fired up by Fed Chair Powell's dovish-minded testimony before the House Financial Services Committee on Wednesday and his rather overt hints that the FOMC is going to cut the target range for the fed funds rate by at least 25 basis points at the July 30-31 FOMC meeting.
The S&P futures are up five points and are trading 0.2% above fair value. The Nasdaq 100 futures are up 12 points and are trading 0.2% above fair value. The Dow Jones Industrial Average futures are up 94 points and are trading 0.4% above fair value.
Now, consider some of these other headlines:
- Reportedly, there was an attempt by Iranian vessels to stop a British oil tanker from leaving the Strait of Hormuz.
- U.S. officials, according to The Washington Post, are bothered by changes in China's negotiating team and a seeming unwillingness to bend on the core issues that have prevented a deal from happening.
- Treasury Secretary Mnuchin is pushing Congress to raise the debt ceiling before the August recess, yet disagreements on budget plans between Democrats and the White House, according to the Washington Post, are making it challenging.
- France is pushing ahead to impose a 3% tax on revenues generated by some of the largest U.S. technology companies doing business in France -- a decision that has drawn the attention (and ire) of U.S. officials who are reportedly exploring the possibility of imposing retaliatory tariffs.
On any other day, the confluence of those headlines might have upended the futures market and created a negative bias for the start of trading. That hasn't been the case today, however, which leads us to think the rate-cut hoopla is the prevailing support catalyst.
An impressive second quarter earnings report from Delta Airlines (DAL) deserves some credit, as does a pre-open rally in the pharmacy benefit management stocks, like CVS Health (CVS), which is up 5.9% following a Politico report that indicates the Trump administration has withdrawn its plan to eliminate rebates from government drug plans.
Still, the guiding influence is the cat-like invincibility of the Fed put, which has nine lives (or perhaps even more).
One could tell just how locked in on the interest rate issue the market is with the release of the Consumer Price Index for June. The futures saw a dip after total CPI and core CPI, which excludes food and energy, both checked in higher than expected.
Total CPI was up 0.1% m/m in June (Briefing.com consensus 0.0%) while core CPI was up 0.3% (Briefing.com consensus +0.2%). Those readings left CPI up 1.6% yr/yr, versus 1.8% in May, and core CPI up 2.1%, versus 2.0% in May.
The key takeaway from the report was that the yr/yr uptick in core CPI should seemingly diminish the prospect of a 50-basis points rate cut at the July meeting.
The same can be said for the initial claims report, which showed a 13,000 decrease in initial claims to 209,000 (Briefing.com consensus 222,000) for the week ending July 6. That left the four-week moving average at 219,250, down 3,250 from the prior week's revised average. Continuing jobless claims for the week ending June 29 rose by 27,000 to 1.723 million.
As a reminder, Fed Chair Powell returns to Capitol Hill for day two of his semiannual monetary policy testimony. He will be appearing before the Senate Banking Committee at 10:00 a.m. ET.
Typically, there aren't many surprises to be had in the second day of this testimony, but with the market so keyed up about the monetary policy outlook, one shouldn't dismiss outright the element of surprise from Fed Chair Powell after his Wednesday testimony was widely regarded as being decidedly dovish.