U.S. Indices chopped to a cool PPI and mixed messages about Fed Chair Powell’s future. Equities finished the day green with outperformance in the Russell after the prior day’s underperformance, while Nasdaq lagged after Tuesday’s outperformance. Sectors were predominantly green with outperformance in Health Care, Real Estate and Financials, while Energy, Communications and Consumer Discretionary lagged. T-notes chopped but settled higher across the curve, supported by a soft PPI report that helped offset some of the inflationary concerns seen on Tuesday after the CPI report started to show the impact of tariffs. There was a lot of volatility on several reports that US President Trump is looking to fire Fed Chair Powell, seeing the 2s30s curve steepen to 120bps, the widest since April, as prospects of a more dovish Fed chair hit front-end yields, while higher growth prospects associated with a lower yields on the short end and term premium lifted long-end yields. The reports also sparked aggressive selling in equities and the Dollar while Gold caught a bid, along with other havens like the Japanese Yen. However, shortly after US President Trump pushed back on these reports, saying it is highly unlikely he will fire Powell, unless there is fraud involved regarding the Fed building renovations, something that Trump touted as a possibility. This saw a large paring of the aforementioned moves with equities bouncing higher from the lows, while the yield curve narrowed from the earlier peaks but still remained steeper on the session. Elsewhere, earnings saw solid GS and BAC reports, while MS finished flat after initially selling. Meanwhile, European chip giant ASML disappointed on guidance for the next quarter and for 2026. Crude prices saw two-way price action, selling off in the European morning with lows seen after the EIA report. However, crude prices pared to settle flat on supply concerns after a drone attack saw APIKUR announce the majority of its member companies suspended production following strikes on Iraqi oilfields in Kurdistan. Several reports had suggested that US President Trump was set to fire Fed Chair Powell, leaving participants fearful of a lack of Fed independence. It was reported that Trump asked GOP Financial House and Service Committee members whether he should fire the Fed Chair, who apparently did not object to the idea, while a meeting was set to take place between the Republican committee members and Fed Chair Powell last night. However, in the Press Conference of Trump’s meeting with the leader of Bahrain, Trump was questioned on the reports. Trump denied them, saying they are not true, and that they are not going to fire Fed Chair Powell, but they will make a change in eight months. Trump also stated that NEC Director Hassett would be considered for the job. Trump said it is highly unlikely that he will fire Powell, unless there is fraud – noting how it is possible there is fraud. Aside from high interest rates, Powell has also come under scrutiny for the cost of the Fed’s building renovations. As it is illegal to fire a Fed Chair over policy differences, it seems Trump could use the cost of the building renovations as a cause to fire Powell, but as it stands, Trump is not planning on doing so yet. Following the reports and denial, FBN reported that the flip-flopping reflects divisions in the administration over his authority. There had also been reports of a meeting between the GOP House and the Service Committee and Fed Chair Powell, but this was later cancelled after Trump’s press conference. It was reportedly cancelled due to the House vote on the GENIUS Act. Following this, Senate GOP banking Committee member Tillis said firing a Fed chair over economic decisions would undermine US credibility and ending the Fed’s independence would be a huge mistake. House Speaker Johnson, meanwhile, said he believes new Fed leadership would be helpful. The market reaction to the firing reports was one of uncertainty. Equity futures were hit while the Dollar tumbled and gold was bid. The move in T-notes also incorporated Fed policy with the yield curve steepening. The front-end of the curve saw yields fall on prospects of a more dovish Fed policy under a new Fed Chair, while long-end yields rose – likely on the growth prospects of a dovish Fed. It is also likely that there was some term premium being priced in too, with participants demanding a higher yield given heightened uncertainty of an economy, given the questions around Fed independence. Note, these moves largely reversed after the Trump pushback. Headline PPI in June was flat despite expectations for a 0.2% rise, cooling from the upwardly revised 0.3%. Y/Y rose 2.3%, beneath the 2.5% forecast and easing from the 2.7% prior (also upwardly revised from 2.6%). The Core measure was also flat, beneath the 0.2% forecast and upwardly revised 0.4%, with Y/Y at 2.6% easing from the prior 3.0%, beneath the 2.7% forecast. Regarding the components that filter into PCE, the drop in Airline fares to -2.7% from -0.9% was somewhat offset by a 2.2% acceleration in Portfolio Management following May’s 0.9% decline. Healthcare numbers were more mixed, physician care maintained a 0.1% pace. Home health and hospice care rose 0.2%, up from -0.1%. Hospital Outpatient care rose 0.3%, up from the -0.2%. Hospital inpatient care was flat, down from the prior 0.3%. Nursing home care rose 0.1%, down from the prior 0.2% pace. Following the data, Pantheon Macroeconomics lowered its Core PCE forecast to 0.28% from 0.35% following the CPI report. Morgan Stanley lowered it to 0.27% from 0.35%, while Oxford Economics look for a 0.4% Core PCE print in June. After the CPI report on Tuesday started to show the impact of tariffs, it is worth noting the impact of tariffs in PPI will likely be delayed as PPI largely ignores imports and focuses on domestically priced goods, therefore PPI will not capture the tariff effect immediately and the impact would likely show up later indirectly, through higher input costs or shifts in production patterns. Regarding the June report, Oxford Economics write “Goods prices did increase, but the 0.3% gain does not point to widespread increases due to tariffs”. Industrial Production for June rose 0.3%, above the expected 0.1%, and the prior months, revised higher, 0.0%. Manufacturing output lifted 0.1% (exp. 0.0%, prev. 0.3%), while capacity utilisation unexpectedly ticked higher to 77.6% from 77.5%, against the consensus of a 77.4% print. On IP, Oxford Economics notes that while it surprised to the upside, they will not be changing their baseline forecast for now, as they still see industrial activity weakening in H2 2025 as the full effect of tariffs materialises. Policy uncertainty remains elevated, and OxEco adds that the price shock will, on average, be larger for businesses ordering equipment than for consumers, and as such, these headwinds will overcome the resilience the manufacturing sector has shown so far this year. Fed Member Logan said that monetary policy needs to hold tight for a while longer to bring inflation down, and she wants to see low inflation continue longer to be convinced. Before PPI, Logan said June CPI data suggests PCE inflation, which the Fed targets at 2%, will rise. The Dallas Fed President added that softer inflation and a weakening labour market could call for lower rates fairly soon, and if the Fed misjudges and does not cut soon enough, it could cut rates further to get employment back on track. Further on rates, Logan suggested cutting rates too soon risks deeper economic scars and a longer road to price stability, and they will be looking at the data in the summer and into fall before they have a good read. Elsewhere, Oil closed flat while Gold closed higher 0.7% higher.
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