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By Tom Wilson
LONDON (Reuters) – Stock markets were mixed on Tuesday as investors waited to see whether U.S. Federal Reserve Chairman Jerome Powell would support an interest rate cut after evidence emerged of a slowdown in the U.S. labor market.
The euro fell 0.2%, with euro zone blue chips falling by the same amount. Energy stocks, which tracked lower oil prices, led the losses, falling 1.2%.
But Wall Street was headed for a brighter open with both GM and Nasdaq futures up 0.3% as tech and semiconductor giants looked set to extend Monday’s rally that saw stocks climb to record highs.
Powell is scheduled to appear before Congress on Tuesday and Wednesday, in a hearing likely to address whether recent signs of slowing inflation and the labor market will prompt the central bank to accelerate its plans to cut interest rates.
Investors were betting that recent weak labor market data had boosted the chances of a September rate cut to about 80 percent.
“As for the US, Fed policy is important but not the only driver. Corporate earnings help offset disappointing expectations of rate cuts,” said Alexandre Marquis, portfolio manager at Unigestion Asset Management.
The prospect of Powell’s testimony has shifted investor focus away from France, where political deadlock in the euro zone’s second-largest economy has eased concerns about the potential financial impact of left-wing or far-right policies.
French political leaders from the left-wing bloc that came first in Sunday’s legislative elections said they intended to govern on their own tax-and-spend programme, but centrists demanded a role as the left lacked a majority.
The euro was volatile on Monday, but the single currency – which has France at its heart – held steady on Tuesday near a four-week high.
Eurozone bond yields also rose ahead of Powell’s testimony. The yield on German bunds, the eurozone’s benchmark, rose one basis point to 2.53%.
The closely watched gap between French and German borrowing costs rose to its highest level since 2012 at 85 basis points in late June amid fears of a far-right victory, and has remained stable at 66 basis points.
The hung French parliament has reassured markets, analysts at Deutsche Bank wrote, because it “makes it difficult to implement any policies, with neither the far left nor the far right able to implement their programmes on these numbers.”
Earlier, the index jumped 1.96%, touching a record high, supported by semiconductor stocks and a weaker yen, which boosts foreign earnings for Japanese companies.
MSCI’s broadest index of Asia-Pacific shares outside Japan rose 0.4%, just shy of a two-year high hit the previous day.
Two interest rate cuts?
US consumer price data due on Thursday will also provide further clues on the health of the US economy. Headline inflation is expected to slow in June to 3.1%, from 3.3% in May, with core inflation expectations held steady at 3.4%.
For the rest of 2024, markets have fully priced in a total of 50 basis points of easing, equivalent to two rate cuts.
The U.S. dollar held near a four-week low of 105.02 against a basket of currencies. The Japanese currency held steady at 160.87 against the dollar, after falling to a 38-year low of 161.96 against the dollar last week.
In Britain, the pound was slightly lower than a one-month high hit on Monday as investors assessed the new political landscape in Britain and France. Sterling was last up 0.1 percent on the day at $1.2817.
Oil prices steadied after a hurricane that hit a major U.S. oil production hub in Texas caused less damage than markets had expected, easing concerns about supply disruptions.
Brent crude futures fell 0.4% to $85.37 a barrel, while U.S. West Texas Intermediate crude rose 2 cents to $82.33.
