Powell's speech, Bitcoin, retail sales - what's moving markets

Investing.com -- Comments from Fed chief Jerome Powell have cemented expectations that the Federal Reserve will start cutting interest rates in September. Investors will look to retail sales data for confirmation of a slowing economy, while there are more bank earnings to digest during the session. Meanwhile bitcoin has gained as traders see a Trump presidential victory as more likely after the assassination attempt.

1. Cementing a September rate cut

Confidence is growing that the Federal Reserve will agree to an interest rate cut in September, after Chairman Jerome Powell’s reasonably dovish comments on Monday.

In what could be his last public comments before the Fed goes into a blackout ahead of its July 30-31 policy meeting, Powell remained cautious but suggested that recent inflation data have been in the right direction for the inflation rate to return to the Fed's target of 2%.

"In the second quarter, actually, we did make some more progress" on taming inflation, Powell said at an event at the Economic Club of Washington. "We've had three better readings, and if you average them, that's a pretty good place."

Powell also said he does not see the U.S. economy hitting major economic turbulence or an outright recession.

The comments were enough for markets to once again shift rate expectations, with traders anticipating 68 basis points of easing this year. A rate cut in September is now fully priced in, the CME FedWatch tool showed.

2. Futures slip ahead of retail sales data

U.S. stock futures slipped back Tuesday from record levels, as investors look for more clues about the health of the U.S. economy in the form of retail sales and bank earnings. 

By 04:10 ET (08:10 GMT), the Dow Jones Futures contract was 40 points, or 0.1%, lower, S&P 500 Futures dropped 9 points, or 0.2%, and Nasdaq 100 Futures fell by 22 points, or 0.2%.

The main indices closed higher on Monday, with the blue chip Dow Jones Industrial Average closing at a new record high, as investors were buoyed by the perceived increased likelihood of a Republican president, which could pave the way for favorable tax and fiscal policies for investors. 

There are more earnings to digest Tuesday, mainly from the banking sector, but a lot of focus will also be on the release of the U.S. retail sales data for June.

This is expected to show a fall of 0.3% on a monthly basis, as consumers struggle with elevated interest rates and high prices. 

3. Trump selects Vance as running mate

Donald Trump reentered the spotlight on Monday, receiving a rapturous welcome on the first day of the Republican National Convention in Milwaukee, just a few days after surviving an assassination attempt in Pennsylvania on Saturday.

Trump was officially nominated to be the party's 2024 presidential candidate, and announced U.S. Senator J.D. Vance as his running mate.

The four-day convention will culminate with Trump's prime-time address on Thursday, when he formally accepts the party's nomination to face President Joe Biden in a rematch of their 2020 race.

The attack has bolstered expectations of a Trump victory in the November election, particularly in the wake of Biden’s weak performance in the first debate between the two players last month.

President Biden gave an interview to NBC on Monday, dismissing concerns about his mental health  and indicated that he had no intention of dropping his bid for reelection.  

The race between Trump and Biden remains close, according to public opinion polls, though Trump leads in several swing states likely to decide the election.

4. More bank earnings

The banking sector will remain in focus Tuesday, with the likes of Bank of America (NYSE:BAC), Morgan Stanley (NYSE:MS) and Charles Schwab (NYSE:SCHW) scheduled to report quarterly earnings before the open.

Goldman Sachs (NYSE:GS) stated, on Monday, that its profit more than doubled in the second quarter on strong debt underwriting and fixed-income trading, but slipped from a bumper first quarter when earnings were the highest since 2021.

The resilience of the U.S. economy has given corporate executives the confidence to pursue acquisitions, debt sales and stock offerings.

“We expect that stock investors will be focusing on Q2's earnings reporting season over the rest of this month through early August,” said analysts at Yardeni Research, in a note.

“If earnings turn out to be better than expected (as we project), then the bull market should broaden as investors continue to discount cuts in the federal funds rate later this year, as they did on Thursday and Friday. The breadth of positive three-month forward earnings growth rates among the S&P 500 companies continues to widen.”

5. Bitcoin in demand

Bitcoin price rose on Tuesday, adding to the previous session’s gains, buoyed by the prospect of friendlier crypto regulations in the U.S. if Donald Trump was to win a second term in the 2024 presidential race. 

At 04:10 ET (08:10 GMT), Bitcoin rose 0.3% to $63,115, gaining almost 9% this week, and almost 50% year to date.

Speculation over Trump helped the token rise past concerns over selling pressure from distributions by defunct crypto exchange Mt Gox, which had seen Bitcoin crash to as low as $54,000 earlier in July.

Bitcoin’s rebound came after a failed assassination attempt on Trump, over the weekend, was seen as greatly boosting the former president’s popularity.

Trump has maintained a largely supportive stance towards the crypto industry, recently stating that the future of Bitcoin should be built in the U.S. and not overseas.

This contrasts with a slew of crackdowns against the industry by the SEC and the Department of Justice in recent years.