Prior Week Summary
Global equity markets rallied last week as the U.S./China trade truce boosted investor sentiment and weakened global growth concerns. The holiday-shortened week in the U.S. made for a lighter batch of economic releases, but all eyes were on Friday’s release of the June non-farm payroll report, which topped consensus estimates and saw the addition of 224,000 jobs. The strong jobs number materially diminished the case for a 50 basis point “insurance cut” at the July FOMC meeting with the Fed Funds futures market currently pricing in under a 1% chance for a 50 basis point cut, down from 20% at the start of last week. The employment report did see some weakness however, as the unemployment rate ticked up to 3.7%, average hourly earnings rose less than expected, and May’s weak jobs figure was revised downward. Speaking on the U.S. outlook in Helsinki on Monday, Federal Reserve Vice Chairman Richard Clarida said, “The baseline outlook for the U.S. economy continues to be a positive one where the committee sees growth at or slightly above trend, sees the unemployment rate remaining low and the inflation rate rising gradually toward 2%.”
Separately, European stocks and bonds rallied on the news that Christine Lagarde, Managing Director of the International Monetary Fund, was nominated to succeed Mario Draghi as ECB President. Lagarde is expected to maintain Draghi’s dovish stance on monetary policy and reports suggest that she should have no issue winning approval from the European Parliament.
The Look Forward
Market participants will be looking forward to the release of updated figures on wholesale inventories, the Consumer Price Index, and the Producer Price Index. The FOMC minutes for the June meeting are released on Wednesday, and Jerome Powell is set to testify before the House Financial Services Committee and the Senate Banking Committee.
Market Implied Policy Path (Overnight Indexed Swap Rates)
Fixed Income Snapshot
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