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North American Morning Briefing: Powell's Second Day of Remarks Awaited

OPENING CALL

Index futures were muted on Wednesday ahead of Jerome Powell's return to Congress for a second day of testimony, this time in front of a House committee.

His remarks Tuesday inched the Fed closer to cutting rates, and investors will be parsing his answers today for any further clues on the policy outlook.

Overseas Markets

Global stocks were mixed. Japan's Nikkei 225 notched the latest in a series of record highs.

In Europe, the Stoxx Europe 600 edged higher.

Chinese stocks fell. Data showed China's factory-gate prices continuing to fall, and annual consumer-price inflation slowing to just 0.2%.

Postmarket Movers:

LegalZoom.com cut its revenue outlook for the year on Tuesday and said Chief Executive Dan Wernikoff is leaving. Shares dropped 11%.

Smart Global reported a swing to profit in the third quarter and guided for higher-than-expected revenue for the year as a whole. Shares rose 5.1%.

VivoPower International secured an extension to its $34 million shareholder loan financing. Shares rose 20%.

Premarket Movers:

Apple was up 0.3% after it became the first company to close with a market value of $3.5 trillion or more on Tuesday.

Nvidia shares rose. Its stock has advanced more than 4% in the first two days of this week.

Taiwan Semiconductor Manufacturing reported a jump in sales during June and said second-quarter sales topped analysts' forecasts. Shares rose 1.9%.

Tesla stock has gained for 10 straight sessions. It looked poised to extend that rally into another day, with shares rising 0.8%.

Volkswagen cut its full-year sales forecast, citing the potential closure of an Audi EV plant. Volkswagen's non-voting stock fell more than 1% in Frankfurt.

Watch For:

EIA Weekly Petroleum Status Report

Today's Headlines/Must Reads:

Russia Seeks to Boost Trump in 2024 Election, U.S. Intelligence Officials Say

Why Some Democrats Are Sticking With Biden

Shoppers Have Fewer Choices. Brands and Retailers Like It That Way.

MARKET WRAPS

Forex:

The dollar was steady.

ING said the euro is at risk of falling due to ongoing political uncertainty after the French elections, adding that coalition talks will prove a lengthy and complicated process.

It could take weeks to break the gridlock and bond markets might get unnerved by such immobility.

ING said the euro currently appears comfortable trading around $1.08 against the dollar as it awaits U.S. developments.

Softer inflation data on Thursday could push it up to around $1.09, but at that point selling interest could reemerge as French political and fiscal concerns remain unresolved.

Bonds:

Treasury yields were subdued.

Given signs that inflation is becoming more predictable, Oxford Economics expects central banks to move away from their heightened data dependence and rely more on forecasts.

"It risks making central banks too backward-looking and prone to policy inertia, while also creating undesirable volatility in bond markets."

In the eurozone, data and increased political uncertainty suggest that there is room for further easing in the European Central Bank's policy stance, and a September rate cut could be well timed, according to Societe Generale Research. Beyond September is less certain.

"What remains very unclear in the current economic environment, which despite weak activity is characterized by significant labor-market tightness, is whether these indicators of underlying inflation pressure can adjust rapidly enough without a major slowdown in activity."

Morgan Stanley Research said U.S. corporate bonds aren't cheap and there are better opportunities within securitized, emerging market and European credit.

Energy:

Oil edged lower on disappointing economic data from China and easing fears over supply disruptions from Hurricane Beryl.

China's latest data showed consumer prices rose less than expected in June, raising concerns on domestic demand trends in the top oil importer.

All eyes are now on OPEC's monthly report and the EIA's weekly inventories due later on Wednesday for more insights into the demand outlook.

Metals:

Gold futures rose as hopes grow for a rate cut sooner rather than later.

Looking ahead, Thursday's U.S. consumer-price index inflation data is July's most important macroeconomic data point.

The CPI print is the Fed's preferred measure of inflation and if it comes in cooler than expected, gold will likely climb even higher as the prospect of a rate cut will rise.

Charts

A potential medium-term bullish uptrend for gold may be looming, based on charts for the precious metal and U.S. 10-year Treasury real yield, Oanda said.

Gold/Central Banks

Citi estimates a record roughly 1,100 metric tons of gold will be bought by central banks in 2024 , up 5.8% on year, despite the recent pullback. The market could even "see 1,250 [tons plus] of buying in a bull-case scenario over the next year."

Silver

Silver --up 30% year-to-date--is already trading around Morgan Stanley's fourth-quarter price target of $31 a troy ounce, and the bank said there's room for prices to rise even more if demand from the solar sector strengthens and high prices fail to raise supply.

Copper

New pipeline copper projects will increasingly be outpaced by demand amid the green-energy transition, said BMI, revising its 2024 copper price forecast to $9,600/ton from $9,200/ton.

"In the longer term, we expect prices to reach $17,000/ton in 2033, as the structural deficit persists due to a strong demand outlook as the green transition accelerates."

   
 
 
   
 
 

TODAY'S TOP HEADLINES

 
 

Honeywell Strikes $1.8 Billion Deal for Liquefied Natural Gas Business

Honeywell has struck a deal to acquire the liquefied natural-gas process technology and equipment business from Air Products for $1.81 billion, according to people familiar with the matter.

   
 
 

Microsoft Withdraws From OpenAI's Board Amid Antitrust Scrutiny

Microsoft has relinquished its seat as an observer on the board of ChatGPT maker OpenAI, as regulators on both sides of the Atlantic scrutinize the partnership between the tech giant and the artificial-intelligence startup.

In a letter sent Tuesday to the AI company led by Sam Altman, Microsoft said it resigned with immediate effect because it believed OpenAI's board had gained enough stability to make Microsoft's involvement no longer necessary.

   
 
 

Tesla's Full Self-Driving Rivals Are in China

China already dominates electric-vehicle technology. Now it seems to have caught up with the West in the bumpy race to automate driving, too.

After years of frustrated hopes, the excitement around driver automation is building again. Tesla Chief Executive Elon Musk is largely responsible, having zeroed in on the company's driver-assistance technology as the best answer to its growth woes. Google-owner Alphabet's driverless-taxi project Waymo also has shrugged off concerns caused by a high-profile accident at its struggling rival Cruise, which is controlled by General Motors. Waymo recently signaled its confidence by opening its doors in San Francisco to anyone who downloads the app.

   
 
 

China Consumer Inflation Stays Tepid, Factory-Gate Prices Continue to Fall

China's consumer inflation remained tepid last month while factory-gate prices continued to fall, pointing to persistently lackluster demand despite Beijing's efforts to juice up consumption.

The country's consumer-price index rose for a fifth consecutive month in June, edging up 0.2% from a year earlier, the National Bureau of Statistics said Wednesday. That missed the 0.4% rise expected by economists in a Wall Street Journal poll and compared with May's 0.3% increase.

   
 
 

Trade War Continues With EU Tariffs on China. Here's How China May Respond.

The European Union this week placed tariffs on Chinese-made electric vehicles, just weeks after the U.S. unveiled its own tariffs on China. Now, investors are looking to China for the next salvo in the trade war.

China's response may not take shape until after the U.S. election-and may not come in the form of tariffs.

   
 
 

How Drug Middlemen Keep Beating the System

Drug middlemen, known as pharmacy-benefit managers, have accomplished something rare in Washington: Their business practices have led to a bipartisan consensus of sorts around the need for more regulation.

Yet successfully cracking down on the tactics that drive health costs higher won't be easy. That is because PBMs operate in a highly complex and opaque world where key information is kept from the public.

   
 
 

Democrats' Effort to Push Biden Off Ticket Hits Uncertainty

WASHINGTON-An effort by some Democrats to seek an alternative to President Biden as the party's nominee faced new uncertainty Tuesday, with frustrated lawmakers struggling to find a path forward after the president said he was dead set against stepping aside.

The situation remained in flux, after House and Senate Democrats held conference meetings for the first time since Biden flopped at June's presidential debate. His performance heightened concerns that the 81-year-old incumbent couldn't beat former President Donald Trump and may not be fit enough for another four years even if he did win.

   
 
 

Write to clare.kinloch@wsj.com

TODAY IN CANADA

Earnings:

Cogeco Communications 3Q

Theratechnologies 2Q

Economic Indicators (ET):

Nothing major scheduled

Stocks to Watch:

Kelso Technologies CEO James R. Bond Retires; Frank Busch Named Interim CEO

Market Insight:

Rate Cuts Could Help Spur Canada's Lackluster Productivity

1801 ET - Economist David Rosenberg says interest rate cuts in Canada would help lift the country's porous labor productivity in the short term. The head of Rosenberg Research says policymakers mostly talk about medium- to longer-term solutions, such as increasing competition and reducing regulation. He says rate cuts are often ignored, but can have an immediate impact because Canada's most productive sectors, like IT and manufacturing, tend to be rate sensitive.

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July 10, 2024 06:38 ET (10:38 GMT)

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