US dollar extends rebound as US yield curve steepens on Trump bets. Dow Jones hits fresh record but global stocks slip on trade war fears. Dovish Powell lifts sentiment, retail sales eyed next.
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Welcome to another episode of Global Market Insights brought to you by XM.com, where we provide meaningful and informative content about the events that affect market trends and shape global markets. Thank you for joining us at XM.com. This is today's Market Common podcast for Tuesday, July 16th by Raf Boya Gian. I'm Christina Marukas. A steepening U.S. yield curve helped the U.S. dollar to bounce back from last week's post-CPI lows as growing bets that Donald Trump would get re-elected as president pushed long-dated yields higher, while short-term yields fell on firming expectations that the Fed will cut rates in September. The dollar index is heading higher for a second day on Tuesday, as investors position themselves for a second Trump presidency following the boost to his popularity after Saturday's failed assassination attempt. Trump has seen us increasing deregulation, cutting rates and slapping fresh tariffs on Chinese imports, which regarding the latter two would be inflationary. But this is a more long-term view on inflation and why the 30-year treasury yield jumped the most since the shooting. In the near-term, however, rates look set to fall, as Fed Chair Powell gave further hints on Monday that a rate cut could be close. Speaking at the Economic Club of Washington, D.C., Powell said that the recent inflation data does add somewhat to confidence that inflation is on course to reach the 2% inflation target sustainably. Rising expectations that the Fed will not only slash rates at least twice this year, but also that rate cuts in 2025 will be a lot more aggressive, fed the positive sentiment on Wall Street. The Dow Jones industrial average closed that a new all-time high yesterday as energy and banking stocks rallied. Strong earnings results by Goldman Sachs lifted the banking sector, while energy stocks climbed on hopes that a Trump win would be positive for the fossil fuel industry. Apple was another winner after it received a new analyst by rating, with the stock closing at a new all-time high. Bitcoin also surged that the prospect of a Trump victory in the November election amid Trump's apparent change of heart about the crypto industry. Elsewhere, the mood was more muted, with European indices in the red for a second day, while shares in Asia were mixed. The fear is that another term of Trump as president would lead to an escalation of trade tensions between the US and China, and potentially between Brussels and Washington as well. The former president was formally nominated as the Republican Party nominee on Monday, but of more interest to the markets was his choice of his running mate, who could become the next vice president. Trump picked Ohio Senator J.D. Vance as his vice president, adding to concerns that a Trump administration would take an even more hard line stance the second time around on key issues such as Ukraine, China, and NATO. In the FX market, the yen found itself on the back foot again weakening to around the $158.50 per dollar level, despite fresh warnings by the Japan's chief cabinet secretary Yoshimasa Hayashi about excessive volatility. The focus later in the day will be on Canada's CPI report, which will likely be crucial for the Bank of Canada's policy decision next week. Traders will also be watching retail sales numbers out of the United States due at 1230 GMT, as well as comments by Fed Governor Coogler at 645 GMT. This was today's Market Common podcast at XM.com. Thank you for listening to another episode of Global Market Insights brought to you by XM.com. For more in-depth technical and fundamental analysis, be sure to visit www.xm.com/research. [BLANK_AUDIO]
