U.S. equities finished higher, with the S&P 500 and Nasdaq returning to record high territory, as Fed Chairman Jerome Powell’s Congressional testimony re-energized July rate cut hopes that had cooled after last week’s stronger-than-expected labor report. Treasury yields were mixed and the U.S. dollar fell, while gold was sharply higher and crude oil prices jumped following a bullish oil inventory report. In equity news, American Airlines upped its guidance for a key revenue metric, but Levi Strauss posted a decline in profits.

The Dow Jones Industrial Average (DJIA) rose 77 points (0.3%) to 26,860, the S&P 500 Index gained 13 points (0.5%) to 2,993, and the Nasdaq Composite increased 61 points (0.8%) to 8,203. In moderate volume, 701 million shares were traded on the NYSE and 2.0 billion shares changed hands on the Nasdaq. WTI crude oil jumped $2.60 to $60.43 per barrel and wholesale gasoline was up $0.08 at $2.01 per gallon. Elsewhere, the Bloomberg gold spot price increased $19.48 to $1,417.09 per ounce, and the Dollar Index—a comparison of the U.S. dollar to six major world currencies—fell 0.4% to 97.10.

Fed Chairman Powell keeps rate cut expectations elevated, mortgage applications decline

The MBA Mortgage Application Index decreased 2.4% last week, following the prior week’s 0.1% dip. The decline came as a 6.5% drop in the Refinance Index more than offset by a 2.3% gain for the Purchase Index. The average 30-year mortgage rate decreased 3 basis points (bps) to 4.04%.

Wholesale inventories (chart) were unrevised at a 0.4% month-over-month (m/m) gain in May, matching expectations, but below April’s downwardly-revised 0.8% rise. Sales grew 0.1%, versus the expected 0.3% increase, and following April’s 0.4% decline.

However, the Fed was the main focus for the markets as Federal Reserve Chairman Jerome Powell concluded his first (of two) semiannual monetary policy testimony on Capitol Hill in front of the House Financial Services Committee. Powell noted that crosscurrents, such as trade tensions and global growth worries have been weighing on economic activity and the outlook, while inflation pressures remain muted. He also reiterated that the Fed will “act as appropriate to sustain the expansion.” Powell’s testimony was followed by the afternoon release of the minutes from the Federal Open Market Committee’s (FOMC) June monetary policy decision, where it removed its “patient” language from its statement. The report indicated that several officials believed a case for a rate cut was stronger and that it could shore up inflation and cushion the economy. The Committee appeared surprised by the sudden signs of weakness in the economy, stating, “…additional monetary policy accommodation would be warranted in the near term should these recent developments prove to be sustained and continue to weigh on the economic outlook”. Rate cut expectations had ramped up amid trade and global growth concerns, but cooled a bit last week following a stronger-than-expected June nonfarm payroll report.

Treasuries were mixed, as the yield on the 2-year note fell 7 bps to 1.83%, the yield on the 10-year note was flat at 2.06%, while the 30-year bond rate rose 4 bps to 2.57%.

Fed Chairman Jerome Powell will continue his testimony tomorrow, this time in front of the Senate Banking Committee, while the economic calendar will also hold weekly initial jobless claims, expected to be unchanged from the prior week’s level of 221,000, as well as the Consumer Price Index (CPI), with economists forecasting a flat reading for June for the headline rate, while the core rate, which excludes food and energy, is projected to have increased 0.2% m/m.

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