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Megacap Growth Stocks Propel Nasdaq
 

The tech-heavy Nasdaq soared on Monday thanks to solid performances from megacap growth stocks like Apple (AAPL) and Tesla (TSLA). The Dow and S&P 500 also eked out modest gains in what can best be described as pre-holiday market lethargy. Investors eagerly anticipate that U.S. labour market data will be due later this week, hoping it will clarify whether the jobs market has cooled enough to justify a September rate cut.

Bond Yields and Market Jitters
 

Higher bond yields are dampening broader stock market enthusiasm. The yield on the 10-year Treasury note climbed to a three-week high, influenced by the lack of unpleasant surprises in Friday’s Personal Consumption Expenditures (PCE) report. Adding to the market's woes, concerns about an economic slowdown grew after disappointing U.S. economic data showed declines in the June ISM manufacturing index and May construction spending.

“U.S. manufacturing activity continued its downward slide at the close of the second quarter,” remarked Tim Fiore on Monday. “Companies are demonstrating a strong aversion to capital and inventory investment due to current monetary policy and other economic conditions.”

S&P Global’s chief business economist, Chris Williamson, painted a similar picture. Despite some positive headlines, U.S. manufacturers are still struggling to ramp up production due to weak demand both domestically and internationally. “Although the PMI has been positive in five of the first six months of 2024, growth momentum remains frustratingly weak,” he noted.

Euro and USD/JPY Movements
 

The euro had a brief moment of glory on Monday following the French parliamentary elections, which showed Marine Le Pen’s far-right party facing more resistance than expected. This reduced the likelihood of extreme policies unsettling financial markets. However, the euro's gains were short-lived as dollar bulls led to bullish dollar politics on both sides of the Atlantic. Ultimately, the French election uncertainly may cap EURUSD gains throughout the summer, even though the U.S. dollar looks prone to a downward correction.

Despite several U.S. economic indicators signalling a slowing economy and a potential September Fed rate cut, USD/JPY continues to climb, briefly touching above 161.70 before easing back on weaker U.S. manufacturing data. Expectations of higher for longer U.S. interest rates over the next 6 to 12 months might outweigh the yen appreciation over that period, supporting the yen-funded carry trade. And given that many of these yen-funded positions are booked at much lower USDJPY levels, the higher the USDJPY pushes, the more challenging it will be to dislodge those sub-150 USDJPY longs.

Central Bank Watch: Powell and Lagarde in Sintra
 

In the picturesque town of Sintra, all eyes and ears are tuned to Federal Reserve Chair Jerome Powell and European Central Bank President Christine Lagarde as they take the stage.

A growing chorus expects the upcoming jobs figures to bolster the case for a September rate cut. With the May PCE figures and a cooling in consumer spending suggesting a gentler economic approach, it seems improbable that the Federal Reserve would want to push the economy into an unnecessary downturn. Thus, September remains the frontrunner for the start of an easing cycle.

Market participants will be hanging on Powell's every word in Sintra today, hoping for hints on the direction of future monetary policy.

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