Prior Week Summary
A shaky start to second-quarter corporate earnings and mixed economic data sent U.S. equity markets lower last week, ending a two-week rally in the S&P 500. Investors were encouraged early in the week as updated figures for the Empire Manufacturing Survey and retail sales topped analyst forecasts, but were disheartened when industrial production, housing starts, and consumer confidence measures fell below consensus estimates. Separately, second-quarter earnings results have been largely mixed thus far with analysts forecasting declines in per-share earnings growth for eight of the eleven GICS sectors.
A number of Federal Reserve officials spoke last week offering a range of views on the appropriate course for monetary policy. Eric Rosengren, President of the Federal Reserve Bank of Boston, pushed back on the notion that the Fed needs to cut interest rates saying, “The U.S. economy is not at that point, the economy is actually quite reasonable at this stage. So, if that were to change, I’d be happy to ease at that point. But I don’t want to ease if the economy is doing perfectly well without that easing.” The Vice Chairman of the Federal Reserve, Richard Clarida, offered statements more in line with the markets current expectations for Fed easing, noting, “you don’t have to wait until things get so bad to have a dramatic series of rate cuts.” The Fed Funds futures market is pricing in a 100% chance for a rate cut at the July FOMC meeting.
The Look Forward
All eyes will be on the release of the 1st estimate of second-quarter GDP on Friday. Consensus estimates are calling for 1.8% growth in the second quarter, over a full percentage point lower than the pace seen in the first quarter. Additionally, market participants will be looking forward to the release of updated figures on new and existing home sales, wholesale inventories, and durable goods orders, among others.
Market Implied Policy Path (Overnight Indexed Swap Rates)
Fixed Income Snapshot
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