Prior Week Summary
U.S. equity markets ended the week in positive territory and the global bond rally continued as dovish sentiment offered from U.S. and E.U. central bank officials and U.S./Mexico trade developments dominated headlines and drove markets. Federal Reserve Chairman Jerome Powell fueled expectations of a rate cut while speaking at a conference at the Chicago Fed on Tuesday saying,“We are closely monitoring the implications of these developments for the U.S. economic outlook and, as always, we will act as appropriate to sustain the expansion, with a strong labor market and inflation near our symmetric 2% objective.” A number of Federal Reserve officials, notably Vice Chairman Richard Clarida and St. Louis Fed President James Bullard, expressed a similar openness to accommodative monetary policy throughout the week. The Fed Funds Futures market is forecasting a nearly 80% chance for a rate cut at the July FOMC meeting, up from a 48% probability at the end of May.
The Trump administration suspended its threat to levy tariffs on Mexican goods after U.S. and Mexican officials agreed to a deal in which Mexico would step up their efforts to stem the flow of illegal immigration through the U.S./Mexico border. Detailed in a joint declaration released on Friday, Mexico agreed to deploy “its National Guard throughout Mexico” and to offer “jobs, healthcare, and education” to asylum seekers while the U.S. processes their requests. In U.S. economic news, the May employment report was largely negative with the U.S. economy adding 75,000 jobs, far lower than the 175,000 consensus estimate. The unemployment rate held steady at 3.6%.
The Look Forward
Market participants will be looking forward to the release of updated figures on CPI, PPI, retail sales and consumer sentiment, among others.
Market Implied Policy Path (Overnight Indexed Swap Rates)
Fixed Income Snapshot
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