Last week, we saw more steepening of the curve, with 2-year Swaps coming down 9 BPS and 10-year Swaps coming down 5 BPS. SOFR rates remain flat around 5.34, but we may see a slight tick up before month’s end. GDP numbers came in at 2.8% for Q2, which was stronger than the surveyed number and stronger than the quarter prior. Prices Paid came in at 2.3%, which was lower than the survey as well as the previous quarter. Prices are generally trending down, and while the economy is softening it doesn’t appear to be collapsing. The Fed appears to be pulling back from a soft landing. Core PCE came in at .18% for the month of June, which was close to the surveyed number and a slight acceleration from May. YoY PCE came in at 2.63%, which is above the Fed’s target, but the consensus seems to be that we’re trending lower on inflation.
This week, we get JOLTS numbers on Tuesday followed by the Fed meeting on Wednesday. There’s no chance of a cut this time, but many believe they’ll lay the groundwork for a September cut. A hawkish Fed could move rates up significantly — this is where the risk lies. Payroll numbers come out Friday, with Nonfarm payroll expected to gain 175,000 jobs. This is a relatively healthy number, but some economists expect this data point to surprise on the high side. Unemployment is expected to hold steady.
Many clients are inclined to hold off as long as possible to trade, but it remains a good time to lock in trades on the short end of the curve, given the 70 BPS of rate cuts priced in this year. Numbers are robust right now, but the data isn’t quite there to justify a cut yet. With that said, the Fed has historically waited too long to act and therefore Powell may look to be proactive.
