The Overnight Report: Powell Tango Continues

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US markets lifted after a temporary selloff on Trump's threats to sack Fed Chair Powell which were subsequently refuted.

Small caps via the Russell2000 led the charge as inflation concerns were tempered.

After selling off yesterday, ASX200 futures are pointing to a positive start on Thursday.

Good Morning,

ANZ Bank Australian Morning Focus extract

June inflation showed some signs of tariff effects in the goods sector and played into the Fed’s patient approach to monetary policy.

Powell is under criticism from the White House about not lowering borrowing costs. Overnight it was revealed Trump raised the idea of removing him in a closed-door meeting with congressional Republicans. 

The administration considers the costs of renovating Fed headquarters as possible grounds for dismissal, with Trump commenting that “I sort of think it is” a fireable offence, when asked. Political pressure aside, there is no compelling reason for the FOMC to cut rates now. 

The Cleveland Fed’s median CPI inflation measure for June rose to 4.1% YoY, up from 2.7% YoY in May, while the 16% trimmed mean rose to 3.9% YoY vs 2.2%. We see a -25bp rate cut in September.

Crude oil prices fell for the third consecutive session as investors turn cautious on the prospect of a market surplus later in the year. US crude inventories fell more than expected, by nearly -4mb to 422mbbl, this is the first draw on stocks in three weeks.

However, the build in oil product inventories raised concerns of weakening demand from summer travel. 

Supply side news was not supportive either, as Russia’s crude exports climbed to a one-month high amid a sharp decline in domestic refinery activity.

Exports averaged 3.23mb/d in the four weeks ending 13 July, up 3% from the previous period, according to Bloomberg’s tanker-tracking data. This increase came before Trump’s warning of potential secondary tariffs on buyers of Russian oil if Moscow fails to resolve its conflict with Ukraine. 

Global natural gas prices edged up after outages at Norway’s Nyhamna processing plant due to power supply issues. European gas pared its losses by recovering to EUR35/MWh. While the disruption is likely to be short-lived, any delay could trigger further price increases given the tight supply conditions. 

Europe’s gas stockpiling is underway but competition shipments from Asian buyers is intensifying. Japan is increasing its buying as stockpiles fell to 1.88mt, slightly below the five- year seasonal average.

There is a 70% probability of above-normal heat across eastern and western regions through to 11 August, according to the Japan Meteorological Agency. This could intensify energy consumption and LNG demand. China’s LNG imports continued to track -4% below the five-year seasonal average. 

Iron ore futures rose above US$100/t as positive sentiment started building around demand amid improving mill margins.

China’s imports of iron ore hit 106mt in June, up 1% YoY. Iron ore port inventories have continued to retreat, steel inventories at major Chinese mills fell 2.46% to 15.1mt in early July. However, steel production continued to disappoint, with crude steel output falling -9.2% YoY to 83.2mt in June, the biggest drop in 10 months. 

Year-to-date production fell by -3%YoY to 510mt, the weakest since 2020. This comes amid ongoing stress in the housing market. China’s cumulative new home sales by value in January-June fell -5.2% YoY to CNY3.88trn, according to China’s National Bureau of Statistics. 

Copper prices fell to US$9,600/t as inventories at LME rose, particularly in Asia, with large deliveries into Hong Kong. We don’t expect the US copper market to be rebalanced by the proposed 50% tariffs on copper imports. 

The Traders View: The Inflation Tea Leaves Brewed Another Weaker Blend, Stephen Innes SPI Asset Management

Markets strutted into Wednesday like a cocktail party where someone spiked the punch but forgot to tell the Fed.

After yesterday’s soft-core CPI, this morning’s Producer Prices poured a tall glass of “nothing to see here,” giving lie to the tariff-flation bogeyman the academic set had been forecasting with all the fervour of a cult summoning a rate hike.

Instead, the inflation tea leaves brewed another weaker blend, one with barely a whisper of price pressure, let alone the shriek of economic overheating.

But just as traders were settling in for a nice, boring session, in waltzed the headline risk, cravat loose, eyes wild, with Powell and Trump once again doing their two-man kabuki of “You’re fired, no wait, you’re not”.

Cue the dance in rates. Two-year yields dived as traders priced in rate cuts like they’d just spotted a Fed lifeboat.

The long end, meanwhile, huffed higher, maybe still nursing flashbacks from the last inflation panic or simply confused by Bostic’s latest riddle: inflation pressures are rising, we’re at an inflection point, tariffs might bite by 2026… so, let’s just wait? Got it.

The S&P500 spent the day like a dog chasing its tail, early losses on Powell-firing fears reversed once Trump said the axe wasn’t falling yet.

The Russell led the charge like a terrier off leash, while the Nasdaq barely found its shoes. Momentum names patched up last week’s bruises, while the most-shorted basket kept moonwalking, now pushing three-year highs. A short squeeze this persistent deserves its own ticker.

ETF volumes on the NYSE surged to their highest in weeks, but liquidity thinned out like traders ghosting top-of-book quotes. The top-of-book depth shrank faster than Powell’s public job security.

Meanwhile, Goldman’s hedge fund VIP list took a beating, slipping into the red for the yearlongs limping, shorts laughing. If that isn’t a picture of this market’s bipolarity, nothing is.

Over in Treasuries, trading looked like someone dropped a squirrel on the keyboard. The curve steepened, the 30-year yield briefly spiked over 5% on Powell firing noise, then slunk back under the weight of retraction.

Rate-cut odds for 2025 flipped around like a day trader with too many screens –up, down, sideways– while 2026’s odds sank like they saw something out past the horizon they didn’t like.

The dollar? It went on a ride. First, it puked on the Powell headline. Then it sobered up and clawed back most of the move. Still closed softer on the day, but at least it didn’t finish on the floor.

Gold mirrored the Powell drama like a faithful sidekick; spiking on the chaos, then drifting back, but holding a green close. Don’t call it conviction. Call it reflex.

In sum: inflation data whispers dovishness, Powell survives another news cycle, and traders? They’re still chasing gamma, short squeezes, and narratives; whichever comes first.

My Bostic Rant Time – Stepen Innes

Let’s be brutally honest if you have the privilege of sitting in one of the chairs around the table at the Eccles Building, entrusted with steering the world’s most-watched central bank.

You’re stepping in front of a camera or onto a podium without a functional grasp of how tariffs operate as a de facto VAT on the U.S. economy; you’re better off declining the interview.

Assuming the proposed tariff regime amounts to a static 15% effective rate and factoring in the typical pass-through mechanics assumptions, roughly half absorbed by foreign exporters, U.S. importers and retailers, and the rest landing squarely on the shoulders of consumers, you’re looking at what effectively becomes a one-off 7.5% consumption tax, not staggered.

It’s a hit that eventually rolls off the Fed and trader ledger, given the base effects and the way CPI is calculated and consumed by the markets.

And if you don’t understand that? If you’re still talking about being “data dependent” or insisting “tariff effects will take a year to filter through,” then you’re not illuminating anything; you’re fogging the windshield.

So, if you’re going to hold court on national television with a Fed badge pinned to your chest, it’s best to come armed with more than platitudes. Because credibility is a finite resource. And in a market primed for volatility, tone-deafness isn’t just bad optics; it’s policy malpractice.

On the other hand, if you do have a credible metric, something concrete, not vibes or vintage forecasts that shows tariff-induced inflation is more than a one-off bump and could morph into a persistent threat to price stability, then by all means, explain it. Lay it out. Show your work.

Because there are a lot of folks out here, investors, business owners, and household trying to navigate a market warped by policy fog and headline whiplash, wondering what exactly it is you’re getting paid for.

If the tariff tax is going to bleed through the supply chain, entrench itself in consumer inflation and kick off a wage-price echo, say so. We’ll adjust our risk. We’ll price it in. But don’t just nod solemnly and recite “data dependent” as if it were a magic spell that wards off accountability.

Corporate news in Australia

-Endeavour Group ((EDV)) has extended the use technology from spin off parent Woolworths Group ((WOW)) until the end of the decade.

-Heathscope management is proposing a restructure into a not-for-profit company to retain its 37 hospital network and reduce payroll tax payments.

-Newmont Corp’s ((NEM)) CFO Karyn Ovelman announced her unexpected resignation after the announced US$470m stake sales in Greatland Resources ((GCP)) and Discovery Silver.

-Northern Start ((NST sold 50% of Central Tanami to Mount Gibson for $50m

-Betr Entertainment ((BBT)) has launched a scrip bid for PointsBet ((PBH)) valuing the shares at $1.89.

On the calendar today:

-AU June Unemployment

-EZ June CPI

-US Jobless Claims

-US June Retail sales

-ALCOA CORPORATION ((AAI)) earnings report

-GENESIS MINERALS LIMITED ((GMD)) Qtr report

-GOLD ROAD RESOURCES LIMITED ((GOR)) Qtr report

-REGIS RESOURCES LIMITED ((RRL)) Qtr Report

-SANTOS LIMITED ((STO)) Qtrly Report

-YANCOAL AUSTRALIA LIMITED ((YAL)) Qtrly Report

FNArena’s four-weekly calendar: https://fnarena.com/index.php/financial-news/calendar/

The Australian share market over the past thirty days

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