As we dive into the first trading day of July 2024, the US markets have delivered a mixed bag of economic indicators and significant geopolitical developments. Notably, the euro gained strength following the French elections, while the Japanese yen plunged to a new 38-year low. Here’s a detailed recap of the key events and market movements that shaped the day.

Economic Indicators and Market Reactions

1. US Economic Data

• S&P Global Manufacturing PMI for June:
• Final reading: 51.6 (slightly below the estimated 51.7 and previous 51.7). This indicates a marginal slowdown in manufacturing activity but remains in the expansionary territory.
• US Construction Spending (Month-on-Month) for May:
• Actual: -0.1% (below the estimated 0.2% and previous revised 0.3%). The unexpected decline points to a potential cooling in the construction sector, reflecting broader economic uncertainties.

2. German Economic Data

• German CPI (Year-on-Year) for June (Preliminary):
• Actual: 2.2% (slightly below the estimated 2.3% and previous 2.4%). The lower-than-expected inflation rate could influence the European Central Bank’s (ECB) future monetary policy decisions, especially in a context of global economic instability.

Market Commentary

1. Federal Reserve’s Stance on Inflation

Federal Reserve officials, including John Williams, expressed confidence in the Fed’s ongoing efforts to bring inflation back to the 2% target. This reassurance comes amidst a backdrop of fluctuating economic indicators and ongoing debates over the appropriate pace of interest rate adjustments.

2. ECB’s Monetary Policy Outlook

ECB officials are currently considering the possibility of two more rate cuts in 2024, with policymakers like Wunsch requiring convincing for any additional reductions beyond that. This cautious approach reflects the delicate balance the ECB is trying to maintain amid economic uncertainties.

Major News and Developments

1. French Elections Impact

The euro saw gains following the French elections, which resulted in a relatively stable outcome favoring the existing political establishment. This has provided a temporary boost to the euro as markets welcomed the continuity in economic policies and political stability.

2. Yen’s Historic Decline

In a significant market movement, the Japanese yen plummeted to a new 38-year low. This decline underscores the persistent economic challenges facing Japan, including an aging population, deflationary pressures, and the ongoing struggle to stimulate economic growth. The yen’s weakness reflects investor concerns over Japan’s economic outlook and the Bank of Japan’s monetary policy stance.

3. US Supreme Court Rulings

• Trump’s Immunity for Official Acts:
• The US Supreme Court ruled that former President Donald Trump has immunity for official acts conducted during his tenure. This decision could set a precedent for future legal interpretations of presidential immunity.
• ‘Swipe Fees’ Regulation:
• A ruling on ‘swipe fees’ could potentially open up US regulations to more legal challenges, impacting financial institutions and merchants who rely on electronic payment systems.

4. Corporate and Labor Developments

• Boeing’s Acquisition of Spirit Aero:
• Boeing announced a $4.7 billion stock deal to acquire Spirit Aero, aiming to strengthen its supply chain and expand its aerospace capabilities.
• Samsung Electronics Strike in South Korea:
• The union at Samsung Electronics has declared a strike, highlighting ongoing labor disputes and potential disruptions in one of the world’s largest electronics companies.

Market Impact and Outlook

1. Currency Movements

• Euro: The euro’s rise post-French elections suggests investor confidence in political stability and economic continuity in the eurozone. This positive sentiment could support the euro in the short term.
• Yen: The yen’s sharp decline reflects broader economic concerns and a bearish outlook for Japan’s economy. Investors will likely continue to monitor developments closely, with potential implications for global currency markets.

2. Sectoral Insights

• Manufacturing: The slight dip in the US manufacturing PMI signals a cautious outlook for the sector, potentially influencing future investment and production decisions.
• Construction: The unexpected drop in US construction spending highlights potential challenges in the housing and infrastructure sectors, which could have broader economic implications.

3. Investor Sentiment

Overall, investor sentiment remains cautious amid mixed economic signals and geopolitical uncertainties. The focus will now shift to upcoming economic data releases and central bank communications, which are expected to provide further insights into the future direction of monetary policy and market dynamics.