Rates Rise While the ECB Holds Rates Steady

Swap rates rise, equities continue to struggle. Swap rates rose 3-5bps today in yet another session where rates traded within a 5bp range. The move occurred despite higher-than-expected jobless claims data, and rates are now only 2-7bps lower over the past five sessions. Meanwhile, equities continued to sell-off, with the S&P 500, DJIA, and NASDAQ down 0.70% – 1.29%. The VIX “fear gauge” Index rose 10% to nearly 16, a multi-month high.

European Central Bank (ECB) holds rates steady, dials back on commitment to future rate cuts. The ECB held their policy rate at 3.75% today after commencing rate cuts with a 25bp reduction in June. The decision was largely expected, and arguably more important was ECB President Lagarde’s statement that September’s meeting outcome is “wide open.” The comments marked a material shift from June’s tone, where Lagarde said that there was a “strong likelihood” that the monetary easing phase was underway. However, the number of ECB rate cuts priced in by futures markets for 2024 is nearly unchanged from yesterday at 45bps of cuts.  

Initial Jobless claims hit multi-month high. In another sign of labor market cooling, applications for unemployment benefits rose by 243,000 vs. 229,000 estimates for the week that ended July 13th, hitting the highest level since August 2023. 11,500 new claims were driven by the impacts of Hurricane Beryl, a 1-time event, but overall, the data continued the steady upward trend in unemployment claims since January. The data is a promising sign for doves after Chair Powell emphasized the importance of labor market softening to lawmakers last week on the road to rate cuts.