While a fresh lift for U.S. technology stocks papered over the cracks again on Wall St on Monday, rumblings in the bond market and a steepening of long-term yield curves perhaps indicate more about the political concerns.
The Institute for Supply Management’s June survey showed U.S. manufacturing missed forecasts and contracted for a third straight month, with a measure of prices paid by factories for inputs dropping to a six-month low amid weak demand for goods.
The U.S. economic surprise index is now registering its most negative reading in almost two years, while the Atlanta Fed’s ‘GDPNow’ tracker has ebbed to just 1.7% – its lowest level of the year so far.
While that should encourage hopes for Fed easing this year, there are still some doubts about whether the central bank will execute its first cut before November’s election. Futures price less than a 70% chance of a first cut in September.
Speaking at the European Central Bank’s annual forum in Sintra, Portugal later on Tuesday, Powell may provide an additional steer.
But in a big week for labor market updates, despite the Independence Day holiday on Thursday, May data on U.S. job openings may be as important later in the session.
Bond markets too have other ideas, with President Joe Biden’s poor showing in last week’s presidential TV debate with Republican challenger Donald Trump and Monday’s U.S. Supreme Court ruling on Trump’s partial immunity from prosecution cutting the odds on a Trump victory in November.
Political betting markets now have Trump clear favorite to return to the White House, along with his promises of more tax cuts and draconian hikes in tariffs.
The fiscal implications of all that are starting to unnerve long-term Treasuries, with 10-year Treasury yieldshitting their highest in a month on Monday and the inverted yield curve spread from 2 years to 10 years narrowing to its lowest since early May.
The 2-to-30 year yield curve is at its least inverted in almost five months.
