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Powell returns, Microsoft's board seat, Chinese inflation - what's moving markets -- Fed chief Jerome Powell makes the climb up Capitol Hill again Wednesday, and trading is largely rangebound on Wall Street ahead of this. Microsoft has decided to give up its seat on the board of Open AI, while weak Chinese inflation data indicates a slowing recovery in this important economy. 

1. Powell returns to Capitol Hill

Federal Reserve Chair Jerome Powell returns to Capitol Hill later Wednesday, for the second day of his semi-annual Congressional testimony, this time before the House of Representatives.

Powell flagged the recent labor market cooling, in testimony before the Senate Banking Committee on Tuesday, as an increasingly important factor in deciding when the U.S. central bank will start cutting interest rates.  

“Elevated inflation is not the only risk we face,” Powell said Tuesday, noting that the "labor market has cooled really significantly across so many measures."

"Reducing policy restraint too late or too little could unduly weaken economic activity and employment,” Powell said, after noting that labor market indicators "have returned to about where they stood on the eve of the pandemic.”

Market participants have taken these comments as the Fed chief preparing the ground for a September cut, acknowledging that inflation isn’t the only factor in deciding monetary policy, but will look for more refinement in his comments later in the session.

2. Futures little changed; Powell speaks again

U.S. stock futures are little changed Wednesday, as investors await the second round of testimony from Fed chief Jerome Powell on Capitol Hill. 

By 04:00 ET (08:00 GMT), the Dow futures contract was 20 points, or 0.1%, lower, while S&P 500 futures climbed 4 points, or 0.1%, and Nasdaq 100 futures rose by 35 points, or 0.2%.

The broad-based S&P 500 index and the tech-heavy Nasdaq Composite closed at fresh record highs on Tuesday, after Fed head Jerome Powell hinted the central bank could soon start easing monetary policy, while the blue chip Dow Jones Industrial Average underperformed. 

Powell continues his testimony later Wednesday, this time before the House Financial Services Committee. 

There’s little in the way of significant U.S. economic data scheduled Wednesday, and all eyes will be on Thursday’s June consumer price index reading, which many see as a key test for the market and the outlook for rate cuts.

3. Microsoft ditches OpenAI board seat

Microsoft (NASDAQ:MSFT) has given up its observer seat at the board of OpenAI, amid regulatory scrutiny into generative artificial intelligence in both the U.S. and  Europe.

The software giant stated that such a position was no longer necessary given an improvement in AI start-up's governance in the past eight months.

"Over the past eight months we have witnessed significant progress by the newly formed board and are confident in the company's direction. Given all of this we no longer believe our limited role as an observer is necessary," it said in a letter to OpenAI dated July 9.

An OpenAI spokesperson said the company will establish a new engagement approach by hosting regular stakeholder meetings with strategic partners such as Microsoft and Apple (NASDAQ:AAPL).

Microsoft took a non-voting, observer position on OpenAI's board in November last year after OpenAI CEO Sam Altman took back the reins of the company.

The observer seat and Microsoft's more than $10 billion investment in OpenAI have triggered unease among antitrust watchdogs in Europe, Britain and the U.S. over how much control it exerts over OpenAI.

4. Chinese consumer deflation 

Chinese consumer inflation shrank in June on a monthly basis, while producer inflation contracted for a 20th consecutive month, pointing to a very slow recovery for the world's second-largest economy.

Month-on-month CPI inflation shrank 0.2% in June, compared to expectations for a contraction of 0.1%, while on an annual basis inflation grew 0.2% year-on-year in June, below expectations for a print of 0.4%.

The weak CPI reading comes as consumers reined in discretionary spending, spooked by relatively high unemployment as well as concerns over a property market downturn.

The lackluster consumer spending presents more near-term headwinds for the country, and suggests the likelihood of more stimulus measures by the Chinese government.

Producer price index inflation shrank 0.8% in June, an improvement from the 1.4% contraction seen in the prior month, and shrinking at its slowest pace since February 2023. 

5. Crude falls on weak Chinese inflation data

Crude prices fell Wednesday, adding to the previous session’s losses as weak Chinese inflation data raised concerns about the health of the second largest economy in the world.

By 04:00 ET, the U.S. crude futures (WTI) dropped 0.4% to $81.12 a barrel, while the Brent contract fell 0.4% to $84.33 a barrel.

Concerns over deflation in China, the world’s largest importer of crude,  weighed on the oil market Wednesday, although a bigger-than-expected draw in U.S. inventories has limited the losses. 

Data from the American Petroleum Institute, released on Tuesday, showed that U.S. oil inventories fell 1.9 million barrels last week, as the summer driving season continued.

Both benchmarks lost about 3% in the previous three sessions on signs that the Texas energy industry came off relatively unscathed from Hurricane Beryl.


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