US stocks hit record highs after dovish Powell; Oil gains on big inventory draw

Summary:

• Powell reaffirms dovish message on Capitol Hill

• S&P500 hits new record high; Gold jumps as USD slides

• DE30: Infineon jumps on attempt to block Cypress merger

• Oil > $66 after large inventory draw

• UK set for economic contraction despite monthly GDP recovery

There was a high level of expectation ahead of Jerome Powell’s appearance on Capitol Hill this afternoon, but the event itself may contain little by the way of surprises after a pre-released text of the Fed chair’s opening remarks has caused a significant market reaction. With markets already discounting a 100% chance of a Fed rate cut at the end of this month, the bar was pretty high for Powell, but he has seemingly repeated the trick from the June FED decision in meeting it and in doing so sent stocks soaring once more.

Stock markets rallied in response with the S&P500 surging above the 3000 handle and also the prior all time high of 3004 to trade up into uncharted territory. The reaction to this can be seen across several markets with the US dollar falling lower across the board while US bonds and Gold have spiked along with equities. The US 10-year bond (TNOTE) has moved above the 127 handle and could be looking to make a comparable move to the one seen last month after the Fed decision. 

Shareholders of Cypress Semiconductors (CY.US) are suing the company over the merger with the German Infineon Technologies (IFX.DE). Investors claim that the US chipmaker did not provide them with enough information concerning the sale and may have put them at a disadvantage by doing so. Shareholders of Infineon seem to like the attempt to block the merger as company’s shares trade among DAX leaders today.

The weekly government oil inventory data from the US has shown a large decline, boosting the crude markets that were already firmly higher on the day further. A print of -9.5M means that there have now been 4 consecutive draw downs with 2 of the last 3 in the vicinity of the -10M mark. Against a consensus forecast of -1.9M and a prior reading of -1.1M this afternoon’s data looks like a large downside surprise and even though it appears as less of a shock compared to last night’s API print of -8.2M it is still no doubt a sizable drop. On a daily chart the market has extended back up near recent swing highs around 66.70 and this level could be seen as potential resistance. Potential support at 64.50.

The UK economy grew by 0.3% in May, in-line with the forecasts and ending a run of two consecutive monthly contractions. Even though the data represents a decent recovery from the sizable drop in April it will still take a near miracle for the UK economy to avoid falling into contraction territory in the second quarter, with an increase of 0.8% required in the month of June alone to avoid this fate. Considering the soft PMI readings already seen for last month this would represent a huge shock and as such it seems that the economy is set to post its first quarterly decline in almost 7 years when the data is released next month.