US Stocks Drive Higher on Investor Optimism – Nasdaq up 1.4%
The three major US indices all drove higher in trading yesterday as investor optimism on the ceasefire in the Middle East caught hold, taking the Nasdaq to its first record close since February. The Dow finished up 1.19%, the S&P up 1.11%, while the Nasdaq jumped to its record, up 1.43%. Treasury yields fell despite Fed Chair Jerome Powell remaining cautious on when the next rate cuts are coming, the 2-year down 3.8 basis points to 3.825%, and the benchmark 10-year off 5.3 basis points to 4.294%. The dollar also fell against the majors, the DXY down 0.20% to 97.97. Oil prices were smashed again on the ceasefire news, Brent off 5.18% to $67.78, and WTI down 5.11% to $65.01. Gold fell as haven flows reversed, down 1.35% on the NY close at $3,323.00.
Is Market Optimism Overpriced
Global markets have embraced risk trades over the last few sessions, and some participants are concerned that they may be overpricing the ‘good news’. Most commentaries today will talk about optimism over the ceasefire in the Middle East; however, in truth, that ceasefire was broken within a few hours, providing evidence of just how fragile it could be. US markets have been touted with pricing in Fed rate cuts more strongly, which helped drive the Nasdaq up to a record close, but Fed Chair Jerome Powell remained firmly on the fence in his testimony to the House Financial Committee yesterday. We are still awaiting confirmation of tariff levels from the US, with the due date of July 9th fast approaching. All these factors could combine to see some of the recent moves reversed very swiftly, with most traders expecting more volatility in the days ahead.
Slower Event Calendar Day Ahead for Traders
It is a quieter day on the macroeconomic calendar today, and therefore traders are expecting geopolitical updates to continue to dominate market direction. The initial focus in the Asian session will be on Australian markets, with the latest key CPI numbers due out early in the Sydney day. Expectation is for the year-on-year data to fall slightly to 2.3%, and anything significantly off this will see big moves in the Aussie dollar, which is once again trading close to annual highs. There is nothing of note on the calendar in the European session; however, we are due to hear from Fed Chair Jerome Powell again once New York opens. However, the second day of his testimony does tend to be less impactful. US New Home Sales data (exp. 694K) and Crude Oil Inventory numbers (exp. -1.2mio) are also due out, but overall, most traders expect newswire updates to dictate market moves.
