Daily Market Color

Overseas Chaos Highlights While US Awaits Upcoming Inflation Data, Powell Report

Swap rates little changed to start CPI week while French elections headline. Rates traded within a ~4bp range today and were little changed. The short end of the curve rose 2-3bps while the long end declined 1-2bps. 1-year inflation expectations (3.02% vs. 3.17% previously) marked the second straight month of declines and headlined US data ahead of CPI on Thursday. Meanwhile, French parliamentary election results shocked as the left and centrist parties exceeded expectations. Early data showed that no party secured an absolute majority, which could lead to political gridlock. France’s CAC 40 stock index closed down 0.63%, reversing early session gains.

Powell to address Congress. Fed Chair Powell will kick off the Fed’s semiannual monetary policy report to Congress tomorrow, which will last two days. It will be the final time Powell speaks to Congress before the presidential election. Senator Elizabeth Warren is expected to press Powell on cutting the Fed Funds rate, following a letter she sent to him in June asking the FOMC to follow the ECB’s recent rate cut. Republicans are expected to critique the proposed “broad and material changes” to large bank capital requirements. House Financial Services Committee Chairman Patrick McHenry strongly opposes the plan, saying that it had “fatal problems” and could pose risks to the financial system.

Japan gets another sign of strengthening wages. Average Japanese base pay rose by 2.5% in May (year-over-year), the fastest pace in over 30 years. A measure that excludes bonuses and overtime pay rose by a record 2.7%, providing evidence that wage gains could be sustained. Bank of Japan (BOJ) Governor Kazuo Ueda recently stated that robust wages and corresponding price increases could allow for additional rate hikes. The BOJ lifted its negative rate policy in March and has yet to shift policy rates since then. 

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