It was a quiet day on the economic events front with only April 'employment trends' on the economic calendar. This index fell to its lowest level since May 2021, but the market largely ignored it.
There were two Fed officials speaking. President of the Federal Reserve Bank of Richmond Barkin and President of the Federal Reserve Bank of New York. Both Williams and Barkin appeared to be more cautious on inflation and policy, but neither went so far as to fear the need for a rate hike.
- Richmond Fed Chairman Barkin today spoke about his concerns about inflation, noted disappointment with this year's data and emphasized that the job is not yet complete. Despite confidence in the ability of the current restrictive interest rate level to ease demand and bring inflation to the target, Barkin stressed the Fed's readiness to respond if the economy overheats. While acknowledging the strength of demand and the potential for companies to raise rates, Barkin highlighted the importance of the Fed's deliberate approach to navigating economic uncertainties. He also expressed concern about the continued risk of inflation and the challenges in controlling it, stressing the need to gain confidence in the path of inflation towards the 2% target. Additionally, Barkin discussed the labor market returning to normal and the continued focus on job growth amid strong GDP performance. Overall, Barkin's comments underscore the complexity of managing inflationary pressures and the Fed's dovish stance in addressing them.
- New York Fed Chairman Williams noted moderation in job growth and emphasized the Fed's comprehensive assessment of economic indicators. Williams, a permanent voting member of the Federal Open Market Committee (FOMC) board, hinted at the possibility of lower interest rates in the future as part of the Fed's strategy. He highlighted the smooth implementation of the balance sheet reduction and its minimal impact on markets, while also noting continued consumer spending and expected GDP growth in the 2% to 2.5% range for this year. Despite the improvement in real wages, Williams noted signs of consumer caution in spending and described the economy as healthy but experiencing slower growth. In addition, he noted that the era of low volatility may be coming to an end, attributing the slower decline in inflation in part to the impact of the Russia-Ukraine war on the global economy. Market expectations currently reflect an expectation of interest rate cuts, with a September pricing probability of 84%.
There have been a number of geopolitical headlines as it appears that an Israeli invasion of Rafah is imminent.
- Hamas accepted the ceasefire agreement proposed by Egypt and Qatar. However, it was later revealed that Hamas had agreed to a different proposal than the one Israel had helped draft. Needless to say, Israel rejected the deal.
- The last framework called for the release of between 20 and 33 hostages over a period of several weeks in exchange for a temporary ceasefire and the release of Palestinian prisoners.
- Israel reiterated its commitment to attack the city of Rafah in the southern Gaza Strip.
Earlier, the Israeli army to caution Palestinians living in Rafah must “evacuate immediately.”
Markets were largely unaffected by the news, with oil prices rising modestly in a range of around $1.10 despite the jitters.
In the Forex market, the British pound was the strongest among the major currencies even though the United Kingdom is on holiday today. The Bank of England will announce its interest rate decision on Thursday. The Japanese yen is the weakest among the major currencies, with USDJPY (and other Japanese yen pairs) correcting declines from last week's trading. The US dollar rose against the Japanese yen and Swiss franc and fell slightly against other currencies.
From strongest to weakest among major currencies
Stocks rose to extend gains after the Federal Open Market Committee meeting and the weak US jobs report.
- The Dow Jones Industrial Average rose 0.46%.
- The Standard & Poor's index rose 1.03%.
- The Nasdaq index rose 1.19%.
In the US debt market, yields were mixed at the end of the day, with the shorter end rising and the longer end falling. The US Treasury will auction 3-, 10- and 30-year coupon issues on Tuesday, Wednesday and Thursday:
- The two-year yield is 4.832%, +2.7 basis points
- The 5-year yield is 4.486%, 0.5 basis points
- 10-year yield 4.487%, -1.3 basis points
- The 30-year yield is 4.636%, -2.4 basis points
Oil prices rose but remained within a fairly narrow trading range up and down. The current level shows trading at $78.62, up $0.51 on the day
Gold prices rose $20.77, or 0.90%, to $2,322.70, and bitcoin traded slightly lower at $63,461.