By Geoffrey Smith
Investing.com -- Federal Reserve Chair Jerome Powell and Treasury Secretary Janet Yellen begin two days of Congressional testimony, a day after another inflation shock from the U.S. Producer price data for June may or may not corroborate the picture given by the consumer price report on Tuesday. The Reserve Bank of New Zealand said it will stop its bond buying program ahead of schedule, adding to the list of central banks around the world removing emergency measures. Apple (NASDAQ:AAPL) is reportedly planning a big increase in iPhone production this year. And Citigroup, Bank of America (NYSE:BAC) and Wells Fargo (NYSE:WFC) all report earnings, along with Delta Air Lines (NYSE:DAL). Here's what you need to know in financial markets on Wednesday, 14th July.
1. Still 'transitory' after all these scares?
Federal Reserve Chairman Jerome Powell and Treasury Secretary Janet Yellen head to Capitol Hill for their semi-annual testimony to Congress, a day after another stronger-than-expected inflation report revived expectations that the Fed will have to withdraw monetary stimulus earlier than it thinks.
A reduction in bond purchases could sit badly with the Treasury market, which is facing years of heightened supply if the Democrats push through the $3.5 trillion anti-poverty plan they agreed late on Monday.
Powell’s testimony, which starts at 12 PM ET (1600 GMT), will show whether Powell – who has repeatedly played down the current inflation spike as ‘transitory’ – has changed his thinking in the light of a report that showed prices rising broadly across the economy. U.S. producer price data at 8:30 AM ET will serve as a warm-up act for the main event.
2. New Zealand starts to tighten; BoC meeting eyed; U.K. CPI jumps
Around the world, meanwhile, more and more central banks are calling time on the emergency measures they put in place during the pandemic. The Reserve Bank of New Zealand said it will stop buying bonds later this month, well ahead of schedule, and also dropped talk about needing time to reach its inflation target. The kiwi rose over 1% in response.
The Bank of Canada, which has already begun to taper its asset purchases, will announce its latest policy decisions at 10 AM ET, while Turkey’s central bank is expected to keep its one-week repo rate unchanged, after raising it from 8.25% to 19% over the last seven months.
Elsewhere, the British pound strengthened after U.K. inflation numbers for June also surprised to the upside.
3. Stocks set to open mixed as Covid-19 case numbers hit reopening trades
U.S. stocks are set to open mixed, but ticking up after an overnight session weighed on by June’s inflation report.
By 5:30 AM ET, Dow Jones futures were flat, while S&P 500 futures were up 0.1% and Nasdaq 100 futures were up 0.4%, with Apple (see below) performing strongly.
News of a 47% increase in U.S. Covid-19 cases on Tuesday, the biggest weekly jump since April 2020, has led cyclicals and reopening plays to underperform again. Delta Air Lines will become the first of the big airlines to report on this quarter before the open.
The spotlight on bank earnings later may be more intense than usual, after the first reports of the season from JPMorgan (NYSE:JPM) and Goldman Sachs (NYSE:GS) both disappointed on Tuesday. Bank of America, Citigroup (NYSE:C), Wells Fargo and PNC Financial (NYSE:PNC) are all due to update before the start of trading.
4. Apple reportedly set to cash in on Huawei's misery
Apple has asked its suppliers to build up to 90 million iPhones this year, a steep increase from the first year of the pandemic, according to a Bloomberg report citing anonymous sources.
The news suggests that the iPhone maker expects demand for upgrades to increase substantially as the roll-out of 5G services across the U.S. and further afield gathers pace.
The report said that Apple is also exploiting the problems of Huawei, whose mobile phone business has been hobbled by U.S. restrictions on the supply of vital components to it.
The report lifted Apple stock some 1.4% in premarket trading to a new all-time high. Shares in suppliers such as Taiwan Semiconductor Manufacturing (NYSE:TSM) and Hon Hai Precision Industry (OTC:HNHPF) – also known as Foxconn – also rose in the Asian session.
5. Oil drifts lower after slowdown in U.S. inventory draw
Crude oil prices dipped in overnight trading, losing some of the momentum gained by an inventory update from the American Petroleum Institute that showed another 4.1 million-barrel draw on U.S. crude stocks last week.
The draw was the 10th in the last 11 weeks, although it was slightly smaller than expected and was also the smallest in five weeks. U.S. government inventory data are due as usual at 10:30 AM ET.
By 5:30 AM ET, U.S. crude futures were down 0.6% at $74.82 a barrel, while Brent futures were down 0.5% at $76.10 a barrel.