1. Powell Returns to Capitol Hill
Federal Reserve Chair Jerome Powell will continue his semi-annual Congressional testimony on Wednesday, this time addressing the House of Representatives. In his Tuesday testimony before the Senate Banking Committee, Powell highlighted the recent cooling in the labor market as a key factor influencing when the Fed might begin cutting interest rates. Powell emphasized, “Elevated inflation is not the only risk we face,” noting the significant cooling in the labor market. He stressed the importance of balancing policy restraint to avoid unduly weakening economic activity and employment. Traders will be keenly watching for any further hints on the Fed’s monetary policy direction, especially with a potential rate cut in September.
2. U.S. Stock Futures Little Changed
U.S. stock futures remained steady on Wednesday, as investors await Powell’s continued testimony. The S&P 500 and Nasdaq Composite closed at record highs on Tuesday, buoyed by Powell’s hints at potential easing of monetary policy. Wednesday’s session is light on significant economic data, with all eyes on Thursday’s June consumer price index reading, which is seen as a critical indicator for the market and future rate cuts.
3. Microsoft Adjusts Its Role with OpenAI
Microsoft (NASDAQ: MSFT) has relinquished its observer seat on the board of OpenAI amid increasing regulatory scrutiny over generative AI. Microsoft cited significant progress in OpenAI’s governance, making their observer role redundant. This move follows Microsoft’s substantial investment in OpenAI and raises questions about regulatory implications in the U.S. and Europe. OpenAI will now engage strategic partners like Microsoft and Apple through regular stakeholder meetings.
4. Chinese Inflation and Deflation
China’s consumer prices rose by only 0.2% year-on-year in June, missing expectations and indicating slow economic recovery. Month-on-month CPI inflation contracted by 0.2%, showing weak consumer spending amid high unemployment and property market concerns. Meanwhile, the producer price index (PPI) fell by 0.8% year-on-year, reflecting continued deflationary pressures. These weak inflation readings suggest the likelihood of more stimulus measures from the Chinese government to boost economic activity.
5. Crude Oil Prices Fall
Crude oil prices declined on Wednesday, extending losses due to weak Chinese inflation data, which raised concerns about the health of the world’s second-largest economy. Despite a larger-than-expected draw in U.S. oil inventories, concerns over Chinese deflation weighed on the market. The American Petroleum Institute reported a 1.9 million barrel draw in U.S. oil inventories, partially limiting the losses. Additionally, the Texas energy industry emerged relatively unscathed from Hurricane Beryl, further impacting crude prices.
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