Dollar weakens further amid Fed credibility concerns

General market commentary

U.S. equities closed mixed on Wednesday as investors digested Federal Reserve Chair Jerome Powell’s comments and awaited key economic data. The S&P 500 ended flat near 6,092, just shy of its all-time high set in February, while the Nasdaq Composite rose 0.3%, extending its recent rally to a third consecutive session. The Dow Jones Industrial Average fell 0.3%, snapping a three-day winning streak. Technology shares led the gains, with Nvidia climbing 4.3% to a record high following a price target upgrade, while Tesla shares declined amid weaker European car sales. Most other sectors traded flat or lower, with real estate among the laggards. Treasury yields were little changed, with the 10-year yield just below 4.3 per cent and the 2-year yield steady around 3.78 per cent.

Market sentiment was supported by easing geopolitical tensions after a fragile ceasefire between Israel and Iran, which helped fuel gains earlier in the week. However, investors remain cautious amid ongoing concerns about tariffs and inflation risks. Powell acknowledged that tariffs will likely cause some inflation in the coming months, but the Fed is taking a wait-and-see approach before adjusting monetary policy. Economic data released on Wednesday showed new home sales in May fell more than expected, adding to signs of softness in the housing market. Overall, despite the mixed session, the major indexes remain within striking distance of record highs, with investors balancing optimism about geopolitical stability and corporate earnings against uncertainties around inflation and trade policy.

Latest market and economic update

Asian equities mostly declined on Thursday as investors balanced optimism over the Israel-Iran ceasefire with caution ahead of the U.S. tariff deadline on July 9. South Korea’s KOSPI fell over 2% amid profit taking, while China and Hong Kong edged lower. Japan bucked the trend, rising over 1% on strong tech gains driven by Nvidia and ongoing U.S.-Japan trade talks.

US equity futures were steady overnight, with the S&P 500 and Nasdaq near record highs. Market support came from the Iran-Israel ceasefire and the US planning talks with Tehran. Investors focused on Fed Chair Jerome Powell’s cautious stance on rate cuts amid political pressure, while attention shifts to Thursday's jobless claims and earnings reports.

European equities closed lower on Wednesday, with the Eurozone's STOXX 50 falling 0.8% and the STOXX 600 dropping 0.7%, as markets weighed the impact of Middle East tensions and increased defence spending. Food and beverage shares, along with banks, saw losses, while defence firms like Rheinmetall and carmaker Stellantis gained on improved prospects.

The US dollar index dropped to 97.5, its lowest in over three years, amid easing geopolitical tensions and expectations of Federal Reserve rate cuts, while the euro strengthened to 1.1694 against the dollar. Fed Chair Powell highlighted tariff-driven inflation risks for steady rates, but traders price in over 60 basis points of cuts by year-end.

Oil prices saw a slight rise in Asian trade due to a significant draw in U.S. oil inventories, suggesting strong demand, though gains were limited by the Israel-Iran ceasefire holding. A weaker dollar and the prospect of U.S. interest rate cuts also supported prices, while concerns over Middle Eastern supply disruptions eased with the truce.

China's Premier Li Qiang announced plans for more aggressive measures to boost consumer spending, signalling potential new stimulus. Despite recent policies, including subsidies on electronics, disinflation remains a concern. Li highlighted China’s economic resilience, with recent data showing steady growth, while a U.S.-China trade deal may provide additional support.

President Trump announced that U.S. and Iranian officials will hold talks next week following a fragile Israel-Iran ceasefire, though Iran has not confirmed. Trump insisted Iran won’t develop nuclear weapons. Meanwhile, Iran’s parliament fast-tracked a bill to potentially halt cooperation with the UN atomic watchdog, complicating diplomacy.

President Trump may announce Jerome Powell’s successor as Federal Reserve Chair earlier than expected, potentially by summer, due to frustration with Powell’s reluctance to cut interest rates. Contenders for the role include Kevin Warsh, Kevin Hassett, and Christopher Waller. Powell, appointed by Trump, intends to serve until 2026.

Equities on the move

The following companies experienced moves in their share price driven by analyst ratings, quarterly earnings, or other news:

Shell denied reports of takeover talks with BP after the Wall Street Journal claimed the companies were in early discussions. Shell emphasised its focus on performance and simplification, while BP's spokesperson declined comment. BP’s shares have underperformed, falling 23% over the past year, compared to Shell's 8% rise.

Tesla's Austin robotaxi trial encountered issues like erratic driving, sudden braking, and risky drop-offs in dangerous spots. While some riders were supportive, experts and regulators raised safety concerns. Similar problems were seen with Waymo and GM's Cruise in the city, highlighting challenges in autonomous vehicle testing.

Micron Technology forecast Q4 revenue of $10.7 billion, above Wall Street's estimate, driven by strong demand for high-bandwidth memory (HBM) chips used in AI data centers. The company reported a nearly 50% sales increase in HBM chips for Q3 and expects market share growth in the segment by 2025.

FedEx shares fell 5.8% after forecasting first-quarter profit below estimates and withholding its full-year outlook, citing uncertainty over Trump's trade policies. Analysts expressed concerns about weak earnings growth, with no guidance provided for the first time in 13 years. FedEx's China exposure and strained air transport amid tariffs also added to investor worries.

Mars' $36 billion acquisition of Kellanova, maker of Pringles, was approved by U.S. antitrust regulators but faces a full investigation in the EU over potential price hikes. The FTC concluded no anticompetitive harm, while the EU raised concerns over Mars gaining negotiating power with retailers. Mars remains optimistic about the deal's outcome.

OpenAI CEO Sam Altman revealed talks with Microsoft CEO Satya Nadella about their future partnership, as both sides discuss revising Microsoft’s investment terms. While tensions exist over the size of Microsoft’s stake, both companies remain optimistic. Altman also praised President Trump for his understanding of AI’s geopolitical and economic importance.

NVIDIA reached an all-time high after Loop Capital raised its price target to $250, driven by strong demand for Gen AI and AI accelerator compute. Loop expects AI spending to reach $2 trillion by 2028, with NVIDIA well-positioned at the forefront of this growth. The firm highlighted next-gen Blackwell chips and shifting trends in hyperscaler compute as key drivers.

Wedbush analyst Daniel Ives raised Microsoft’s price target to $600, citing strong AI adoption and cloud growth. He expects over 70% of Microsoft’s base to adopt AI in the next three years, with Copilot potentially adding $25 billion by FY26. Ives sees Microsoft leading AI in the enterprise space despite competition from Amazon and Google.

Goldman Sachs raised Taiwan Semiconductor’s price target to NT$1,210, citing reduced concerns over AI-chip order cuts and expanding demand for its CoWoS packaging beyond AI applications. The firm also lifted earnings forecasts for 2025-2027, predicting strong revenue growth. TSMC's shares were trading 13% below the new target price.

Cantor Fitzgerald raised Uber’s price target to $106 from $96, maintaining an Overweight rating. The upgrade follows Tesla’s limited robotaxi rollout, which Cantor believes will take years before significantly impacting the rideshare industry. Uber's shares recently reversed underperformance compared to DoorDash amid concerns over the robotaxi launch.

Citi maintained its Buy rating on Eli Lilly, setting a $1,190 price target, citing significant upside from the oral obesity drug orforglipron. The bank forecasts over $40 billion in sales by 2030, driven by LillyDirect and tiered pricing strategies. Citi sees a potential $15 billion consumer platform opportunity, with further applications in other conditions.

Barclays reiterated its Overweight rating and $210 price target on Boeing, citing the potential for significant inventory liquidation. The firm noted Boeing’s $87 billion inventory and estimated it could liquidate $25 billion if sales increase. Barclays also expects Boeing’s free cash flow to turn positive by 2028, estimating $8 billion in midcycle cash flow.

Citi raised its price target on Carnival Corporation to $30 from $28, maintaining a Buy rating after strong Q2 results. Carnival exceeded expectations with record Adjusted EBITDA of $1.51 billion, driven by improved pricing and cost management. The company raised its full-year guidance to $6.9 billion and continues to perform well on bookings.

Bernstein raised its price target for Coinbase to $510, highlighting its dominance as a U.S. crypto platform and its expanding role as a “crypto universal bank.” The firm boosted its 2027 earnings estimate by 28% and expects significant revenue growth, particularly from non-trading services. Despite competition concerns, Bernstein remains bullish on Coinbase’s prospects.

Bank of America maintained a Buy rating on Chewy, citing its strong position in the recovering pet retail sector and its online model. With stabilised pet sales and accelerated traffic, Chewy outperformed rivals like Petco. BofA expects 8% growth for Chewy in Q2, with projected earnings growth of 25% in 2025.

Upcoming data and events

Today’s key economic data in the U.S. includes GDP figures, jobless claims, durable goods orders, and pending home sales. Earnings reports from Nike and Walgreens will also be in focus.

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