A look at the day ahead in U.S. and global markets from Mike

Dolan

After an intense month focused on election risk around the

world, markets quickly switched back to the more prosaic matter

of the cost of money - and whether disinflation is resuming to

the extent it allows borrowing costs to finally fall.

Thursday's U.S. consumer price update for June is the key

moment of the week for many investors - with the headline rate

expected to have fallen two tenths of a percentage point to 3.1%

but with 'core' rates still stuck at 3.4%.

With Federal Reserve chair Jerome Powell starting his

two-pronged semi-annual congressional testimony later on

Tuesday, the consensus CPI forecast probably reflects what the

central bank thinks of the situation right now - encouraging but

not there yet.

But as the U.S. unemployment rate is now back above 4.0% for

the first time since late 2021, markets may look for a more

nuanced approach from the Fed chair that sees it increasingly

wary of a sudden weakening of the labor market as real time

quarterly GDP estimates ebb again to about 1.5%.

There were some other reasons for Fed optimism in the lead

up to the testimony.

The path U.S. inflation is expected to follow over coming

years generally softened in June, amid retreating projections of

price increases for a wide array of consumer goods and services,

a New York Fed survey showed on Monday.

Inflation a year from now was seen at 3% as of June - down

from the expected rise of 3.2% in May - and five-year

expectations fell to 2.8% from 3%.

Crude oil prices are better behaved this week, too,

falling more than 3% from the 10-week highs hit late last week

and halving the annual oil price gain to 10%.

The losses on Tuesday came after a hurricane that hit a key

U.S. oil-producing hub in Texas caused less damage than many in

markets had expected - easing concerns over supply disruption.

Before Powell starts speaking later, there will also be an

update on U.S. small business confidence for last month.

Ahead of the bell, record high U.S. stock indexes look set

to extend their gains and S&P500 futures were in positive

territory yet again.

Fed funds futures have two full quarter-point rate cuts

priced for the remainder the year - with ten-year U.S. Treasury

yields hovering below 4.3% ahead of another heavy

week of debt sales. Some $119 billion of coupons go under the

hammer this week, starting with 3-year notes on Tuesday and then

10s and 30s later in the week.

The dollar was marginally higher, edging up against

the euro, yen, yuan and pound.

In the messier world of politics, the picture was even less

clear - though most of the recent soundings from the White House

suggest President Joe Biden will remain the Democrat candidate

going into November's election.

In Europe, Britain's new government set out its stall on how

to get growth moving again without much leeway in stretched

public finances - concentrating initially on supply-side reforms

that clear the deck for infrastructure projects and more

housebuilding. UK stocks were firmer.

In France, the dust settles a bit on the weekend election

there that leaves gridlock in parliament but the temporary

re-appointment of centrist Prime Minister Gabriel Attal is a

move that may see the country through hosting the Olympics next

month and possibly a compromise 2025 budget in the Fall.

European stocks and the euro edged back

after Monday's relief rally following the failure of French far

right or left alliance gaining an overall assembly majority.

French government debt yields and spreads were steady.

In Asia, stocks were broadly higher - with Japan's Nikkei

outperforming with gains of almost 2% and Hong Kong's

Hang Seng on the flipside ending in the red.

Key developments that should provide more direction to U.S.

markets later on Tuesday:

* US June NFIB small business survey; Mexico June inflation

* Federal Reserve chair Jerome Powell testifies to the Senate

Banking Committee; Fed Governor Michelle Bowman and Fed Vice

Chair for Supervision Michael Barr both speak

* Leaders gather in Washington for NATO Summit

* US Treasury auctions $58 billion of 3-year notes, $46 billion

of 12-month bills

(By Mike Dolan, editing by XXXX [email protected])