Last week, equities pushed to new highs as trade agreement news made headlines, punctuated by a unique arrangement between the US and Japan. Economic and earnings data thus far in July have been relat...
Capital Markets
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4 min read
Last week, equities pushed to new highs as trade agreement news made headlines, punctuated by a unique arrangement between the US and Japan. Economic and earnings data thus far in July have been relatively positive, keeping rates in check as evidenced by the 10-Yr US Treasury continuing to hover near the 4.38% level that has defined an over/under of the market recently. On Thursday, we grabbed our popcorn to see if there was going to be any entertainment from President Trump’s visit to the construction at the Federal Reserve building in DC. On a relative basis, the TV moment was relatively tame and failed to provide much fodder for our viewing pleasure. Oddly, Trump stated that he believes Powell will lower interest rates. We know that Trump has his own agenda, and clearly, Powell has given no indication that such an expectation is likely to occur – at least at this week’s meeting. So perhaps we can expect some fiery Trump social media posts when rates remain unchanged this week.
Participants will likely be in wait-and-see mode for the early part of this week as the widely expected no-cut FOMC announcement (Wednesday), despite the release of some meaningful data prior to the meeting, JOLTS and Consumer Confidence (Tuesday), Treasury Supply and 2Q GDP (earlier Wednesday). Waller is expected to dissent, with a chance that Bowman follows suit in an unusual divergence from the balance of the Fed voting members. Such a move could change the tone of the official release or comments by Chair Powell during the press conference. Later in the week, Thursday brings PCE data with core survey results suggesting a 2.7% YoY reading. Such a reading clearly continues the recent theme that inflation data has failed to make further progress towards the 2% stated goal. Friday’s monthly Nonfarm Payroll and Unemployment data suggest a modest cooling of the jobs market, with surveys expecting a muted 109k jobs created and a slight uptick to 4.2% unemployment.
Lest we forget, the important August 1 deadline for President Trump’s tariff increase looms over the market. Most notably, over the weekend, the US/EU trade was announced with a 15% tariff across many products in line with last week’s agreement with Japan. Early equity futures activity suggests a positive reaction. Now, trade focus will likely shift its attention to China with more talks slated for this week. Though the August 1 deadline is supposedly a firm date, we have seen this movie a few times, and the possibility of an extension is a likely occurrence. The markets have become slightly desensitized to unusual or unexpected news regarding tariffs and trade, with a less volatile reaction, but investors would be prudent to expect the unexpected. Perhaps fading any initial market reaction on tariff news would be a reasonable approach as such a strategy has demonstrated decent returns thus far in 2025.
From the Municipal Desk:
The municipal market performed in line with Treasuries with modestly lower yields along the entire curve last week. The front-end moved slightly more than the longer-end as retail money continued to provide significant demand. New issue loans were priced to move as deals were well-subscribed. Long-end paper continues to be priced cheaply, as evidenced by the attractive ratios for that portion of the market. Mutual fund flows declined by around 50% from the prior week to +$674 million but remained positive for the 11th consecutive week. Next week’s calendar is expected to be around $10 billion despite the talk that some issuers held off coming to market during the FOMC decision week.
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The Bloomberg Barclays Global Aggregate Negative Yielding Debt Market Value Index represents the portion of the Bloomberg Barclays Global Aggregate Index that measures the aggregate value of global debt with a negative yield. • The S&P 500® is widely regarded as the best single gauge of large-cap U.S. equities and serves as the foundation for a wide range of investment products. The index includes 500 leading companies and captures approximately 80% coverage of available market capitalization. • The NASDAQ Composite Index is a broad-based capitalization-weighted index of stocks in all three NASDAQ tiers: Global Select, Global Market and Capital Market. The index was developed with a base level of 100 as of February 5, 1971.• The Cboe Volatility Index® (VIX) is a calculation designed to produce a measure of constant, 30-day expected volatility of the US stock market, derived from real-time, mid-quote prices of weekly S&P 500® Index (SPX) call and put options with a range of 23 to 37 days to expiration.• The ICE BofA MOVE Index is a yield curve weighted index of the normalized implied volatility on 1-month Treasury options. It is the weighted average of implied volatilities on the CT2 (Current 2 Year Government Note), CT5 (Current 5 Year Government Note), CT10 (Current 10 Year Government Note), and CT30 (Current 30 Year Government Note), with weights 0.2/0.2/0.4/0.2 respectively.• The Markit CDX North America Investment Grade Index is composed of 125 equally weighted credit default swaps on investment grade entities, distributed among 6 sub-indices: High Volatility, Consumer, Energy, Financial, Industrial, and Technology, Media & Tele-communications. Markit CDX indices roll every 6 months in March & September. • The Markit CDX North America High Yield Index is composed of 100 non-investment grade entities, distributed among 2 sub-indices: B, BB. All entities are domiciled in North America. Markit CDX indices roll every 6 months in March & September. • The U.S. Dollar Index (USDX) indicates the general international value of the USD. The USDX does this by averaging the exchange rates between the USD and major world currencies. Intercontinental Exchange (ICE) US computes this by using the rates supplied by some 500 banks.
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