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If Federal Reserve officials plan to reduce bond investors' expectations of rate cuts, they will have plenty of airtime in the coming days to deliver the message.
Traders have already been hit hard for their rate-cutting bets, after Friday's payroll report showed a rebound in hiring faster than expected. Futures contracts still show a quarter point cut in July, although about 6 basis points were forecast ahead of the employment data, and it may not take much to further undermine the outlook. belief of traders.
The United States and China are still in talks to resolve their trade dispute, while the US manufacturing and services industries continue to grow, although the pace has slowed.
A Fed waiting after July could derail more than the futures positions. The flattening of the yield curve over the past two weeks may be gaining momentum, which would have the effect of silencing the upside forecasts that flourished last month, when the Fed opened the door for a reduction. . Investors who have paid money in Exchange Traded Funds this year can also be caught off guard. The jobs report catapulted the 10-year yield 8 basis points from its lowest level since 2016, at 2.03%. This was the largest increase in the benchmark since April, although the low turnover rate in a short vacation week may have overstated this trend.
"No reduction in July would probably require a reduction in market prices by the Fed," said Jonathan Cohn, head of Credit Suisse's interest rate strategy.
This is not his basic case, as he expects the Fed to be unwilling to take the risk of undermining stocks. Economists at Goldman Sachs Group Inc. agree, estimating that the probability of a quarter-point decline this month was 60%, with 15% chance of a larger move, according to a note. published after Friday's data.
But if decision makers are inclined to wait, they will have ample opportunity to explain it. The most important is the semiannual testimony of Fed President Jerome Powell before the Congress on Wednesday and Thursday. The minutes of last month's political deliberations should be published, pointing out that even before these more reliable employment data, a slim majority of civil servants did not expect a rate cut this year.
FTN Financial's Jim Vogel said positioning for Fed action beyond July was the most at risk for the coming week. According to him, traders may need to rethink their belief that interest rates will fall by at least half a point this year from their current range of 2.25-2.5%.
"The question really goes beyond," And in July? ", To" Is there really a 2% chance by the end of the year? ""
He's looking for Fed advice this week rather than the data. According to him, it is unlikely that the downward trend in consumer prices expected Thursday, is reversed, and there has been no concern recently Fed officials above the 2% mark.
Bond traders will also review a Bank of Canada decision on July 10, with no rate changes expected.
As for the United States, here is the economic calendar for next week:
July 8th: consumer credit
July 9: optimism of small businesses of the NFIB; JOLTS Jobs
July 10: MBA mortgage applications; sales and stocks of wholesale trade
July 11: consumer price index; Initial jobless claims; real average hourly and weekly earnings; Bloomberg survey on consumer comfort; monthly budget statement
July 12: producer price index; July Bloomberg Economic Survey
Fedspeak goes on a tear:
July 9: James Bullard of St Louis Fed speaks locally; Raphael Bostic of the Atlanta Fed is also in St Louis
July 10: Powell testifies before House Financial Services panel; Bullard speaks again to St. Louis; Fed releases minutes of June meeting
July 11: Powell testifies before the Senate Banking Committee. John Williams of the New York Fed speaking in Albany, New York; Bostic at the tax conference; Thomas Barkin of the Richmond Fed at the Rocky Mountain Economic Summit; Neel Kashkari, Minneapolis Fed, South Dakota; Chicago Evans from the Chicago Fed to Chicago
The auction calendar:
July 8: bills of 36 billion dollars over 3 months; $ 36 billion in bills at 6 months
July 9: 3-year notes of 38 billion dollars
July 10: reopening of $ 24 billion notes over 10 years
July 11: bills of 4 to 8 weeks; Re-opening of $ 16 billion bonds over 30 years
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