Traders previously so sure of a July Fed rate cut will be sitting somewhat more uncomfortably in the wake of Friday’s surprisingly strong jobs report. A debate over the size of the cut, 50 basis points or 25 basis points has surely been shelved. There has to be a possibility that the Fed may not even cut at all now. With US data points still reflecting US relative outperformance, the argument has been of the need for an insurance cut. The significance of cutting rates should not be underestimated and would surely be a decision not taken lightly. So traders will look towards Fed chair Powell’s Congressional testimonies this week for any further clues. There has been a sharp rebound on Treasury yields from the payrolls report, including +10bps on the 10 year and +13bps on the two year. This has pulled a turnaround across other asset classes. Primarily the dollar is on a stronger path once more, whilst the bull run on gold is being questioned, whilst profits are being taken on equities. There has been a slight unwinding of these moves this morning with yields slipping back a touch, whilst the yen and gold are also a shade stronger, however, this also reflects a risk negative start to the week as equities are still looking corrective. How Powell presents and hints on monetary policy this week could be key. Further stressing data dependence would question the prospect of a July cut, especially if inflation holds up on Thursday. Another few key days ahead.
Wall Street closed weaker on Friday with