What Happened Last Week?
Orderly, Logical Rally as Bonds Reiterate Data Dependence
The Friday jobs report was demonstrably softer than the previous installment across the board, despite the top line nonfarm payroll count being just a hair higher than expected for the most recent month. By the time revisions are considered, the labor market trend went from looking alarmingly resilient to predictably softer. In other words, this is the jobs report trend that conventional wisdom expects with interest rates at these levels. The bond market took the opportunity to calmly confirm its adherence to the Fed’s “data dependent” guidance with an orderly rally of moderately large size. All in all, it was a perfectly agreeable jobs report day, and one that leaves a blank canvas for this week’s CPI data.
Source: Matthew Graham, Mortgage News Daily 7/5/2024)
What’s on the Agenda for This Week?
Domestic Flavor
CPI: CPI has been the most important input for rates as far as economic reports are concerned. Thursday’s is an exciting installment as it has a chance to confirm a promising shift seen in last month’s data. If confirmed, rates should move easily into the 6’s.
Optimism: The June NFIB Business Optimism Index hit 91.5 versus estimates of 89.5. The TIPP July Economic Optimism Index is issued today.
Treasury Dump
Three days of dumping a record amount of debt into the marketplace kick off with today’s 3-year Treasury Note auction.
The Talking Fed
Fed Chair Powell will give his semiannual testimony in front of the Senate Banking Committee. Treasury Secretary Yellen, Vice Chair Barr and Gov Bowman will also speak.
Market Wrap-up
Domestic Flavor
Optimism: The June NFIB Business Optimism Index hit 91.5 versus estimates of 89.5.
Treasury Dump
Tthree days of dumping a record amount of debt into the marketplace kicked off with today’s 3-year Treasury Note auction. $58B went off at a high yield of 4.399% and a bid-to-cover ratio of 2.67.
The Talking Fed
Fed Chair Powell gave his semiannual testimony in front of the Senate Banking Committee. You can read Powell’s prepared testimony here. Here are some key takeaways:
We continue to make decisions meeting by meeting. We know that reducing policy restraint too soon or too much could stall or even reverse the progress we have seen on inflation.
Elevated inflation is not the only risk we face. Reducing policy restraint too late or too little could unduly weaken economic activity and employment.
The Fed Chair stressed that there are two-sided risks for policy: moving too soon or moving too late.
On the labor market, supply and demand now resembles the period right before the pandemic, when the labor market was relatively tight but not overheated but despite the improvements, the report said that significant disparities in the job market still exist.
On Deck for Tomorrow
Fed Chair Powell, House Financial Services Committee, 10-year Treasury Note auction, Fed’s Beige Book.