All eyes on Powell after tech-led rise into fresh highs for the S&P 500

• European markets lower, as French political concerns remain
• US tech help to ensure fresh highs for Nasdaq and S&P 500
• Powell testimony key as we weigh up potential rate cuts this year

We are seeing jitters in early European trade today, with mainland indices heading lower in a move which continues the selling pressure seen towards the back end of yesterday’s session. While the weekend saw the French likely avoid a Far-Right government, the country faces weeks of deadlock as Macron attempts to find a compromise with the Left-wing alliance without ramping up spending. With the French 10-year yield starting to tick higher, there remains clear concern that the country remains in a state of uncertainty which could continue for some time yet. Nonetheless, comments from ECB member Panetta highlighted the plan to continue cutting interest rates in line with expected inflation declines, bringing increased confidence that we will see the ECB maintain its dovish bias despite concerns they would pause and wait for the Fed to act.

Yesterday saw big tech dominate in a session that saw a lopsided rally which pushed both the S&P 500 and Nasdaq into record highs. While the likes of Nvidia, Intel, AMD, and Qualcomm helped keep the gravy train going for these top indices, we saw widespread selling through much of the market. With earnings season starting to gather momentum this week, we are facing a fresh bout of uncertainty as traders weigh up the possibility of a slowdown in the rate of growth in the tech sector. Coming off the back of a week that saw Tesla dominate thanks to a 26% gain, the strength seen within the semiconductors does help provide the basis for further tech-led gains this week. Nonetheless, we once again enter a phase of uncertainty, as traders weigh up whether the dramatic surge for Nvidia can continue in a year that has seen the stock gain $2 trillion over less than seven-months.

Looking ahead, traders remain firmly fixated on the trajectory of US rates, with Jerome Powell making an appearance in Washington today. The two-day testimony focuses on the Fed’s semi-annual monetary policy report, with markets looking for signs over whether the Federal Reserve will start to open up on the possibility of two rate cuts this year. With the Federal Reserve’s dot plot laying out plans for a single 2024 rate cut, there is a disparity that needs to close given the current market pricing for 50-basis points worth of cuts by year-end. With US CPI inflation expected to decline to 3.1% on Thursday, markets will be keen to see whether Powell will focus on the disinflationary pathway or the fact that the 2% target remains out of reach this year.