Powell and Trump are attracting the market’s attention

A look at the day ahead at Ankur Banerjee’s European and global markets

Fed Chairman Jerome Powell’s kind of forgiving comments have cemented a September rate cut, at least in the eyes of the markets, with the prospect of Donald Trump returning to the White House keeping related trades in play and on the minds of investors are stuck.

In what could be his last public comments before the U.S. Federal Reserve goes into a blackout ahead of the July 30-31 policy meeting, Powell remained cautious but suggested that recent inflation data has been in the right direction to boost inflation to return to the level of July 30-31. Fed’s 2% target.

“We’ve had three better readings, and if you take the average, that’s a pretty good spot,” he said at an event on Monday.

The comments were enough for markets to shift interest rate expectations again, with traders expecting a easing of 68 basis points this year. An interest rate cut in September is now fully priced in, according to CME’s FedWatch tool.

That has left the US dollar reeling, with the greenback weakening in the wake of Powell’s comments, but there is also some strength seen in the Asian hours as investors wonder what a Trump presidency could mean for the inflation and interest rates.

Trump made a triumphant entrance on the first night of the Republican National Convention on Monday, receiving a raucous ovation from the party faithful two days after a would-be assassin grazed the former US president’s right ear.

The attack has fueled expectations of a Trump victory in the November election, with cryptocurrencies soaring, gold hitting record highs and the bond yield curve steepening as investors favor so-called Trump victory trades.

In Europe, futures indicate that markets will get off to a subdued start on Tuesday, and with little on the economic calendar for investors to take cues from, Trump and Powell will once again dictate market movements.

Emphasis will be placed on luxury stocks, in the wake of Burberry on Monday signaling a possible loss and canceling its dividend. A gauge for the top 10 European luxury stocks lost 3% on Monday, the biggest one-day percentage drop in 10 months.

Key developments that could impact the markets on Tuesday:

* Economic events: Eurozone trade balance for May, US retail sales * Earnings: US earnings season has begun: BofA, MorganStanley and UnitedHealth

(by Ankur Banerjee; editing by Christopher Cushing)