Market Report: Trade deal and rate cut hopes sees Wall Street test new highs
Derren Nathan, head of equity research, Hargreaves Lansdown: “The FTSE 100 has caught a tailwind from a strong rally in Asian stocks overnight. Exchanges in the Far East latched onto comments by Donald Trump that a ‘very big’ trade deal has been signed between the US and China, while hinting that an agreement with India is imminent. Looking at continental European markets the distinct omission of a timeframe for a deal with the EU may be one reason stock futures across the Channel are pointing downwards.
US stock futures are trading broadly flat after the S&P 500 briefly reached record highs yesterday. Big Tech stocks are back in vogue as the investment cycle in cloud and AI infrastructure shows no sign of abating. Memory chip maker Micron delivered a second quarter earnings beat and better than expected third quarter guidance. Micron’s a key supplier to AI supremo NVIDIA, and strong demand for Micron can be read as a positive for NVIDIA’s own shipments. The results helped Wall Street’s most valuable company build on recent gains with NVIDIA shares at an all-time high of $155 up 25% from 12 months prior.
US unemployment claims data showed a small drop in initial claims last week, but continuing claims rose 37,000 to 1.974 million, the highest in over three years. Theres a growing consensus that June unemployment figures are likely to rise from the 4.2% level seen in May.
The mixed jobs data provides some support for further Fed rate cuts and attention now turns to PCE price index data due later today. Analysts are forecasting a 2.3% annual increase in core prices for May, a slight acceleration from 2.1% seen in April. Anything higher could damage the case for a July rate cut with US prices yet to feel any significant impact from tariffs. A softer than expected print however would see odds of a July cut shorten, potentially pushing US stocks towards a new high-water mark and putting further pressure on the dollar with the Greenback already at multi-year lows. Suggestions by Donald Trump at a White House of an early replacement for Fed chief Jerome Powell has also weighed on the currency after the President claimed it “would be helpful” if Powell’s successor could lower interest rates “a little bit.”
At around $68.2 per barrel Brent Crude prices look to have dismissed the possibility of further Middle East disruption with prices down by over $10 from highs earlier in the week. Despite tightening inventories in the US and increasing optimism about the scope of tariffs the improving demand outlook isn’t driving prices higher with focus shifting to next month’s OPEC+ meeting where further production hikes are widely expected.”