Treasurys Selloff Following Hawkish Fed Rhetoric as Stocks Hit Record Highs

This week’s economic data reporting is on the lighter side, although US financial markets will be closing watching speeches of several key Federal Reserve Board members scheduled to speak.  This morning featured hawkish commentary from Federal Reserve Bank of New York President William Dudley, who reaffirmed the Fed’s projected path of rate hikes and defended the inflation outlook in spite of the tepid consumer price readings over the past couple months.  “Inflation is a little lower than what we would like, but we think that if the labor market continues to tighten, wages will gradually pick up and with that, inflation will gradually get back to 2 percent,” Dudley stated.  He further explained his expectation for wage growth to rise about 3% over the next couple of years and expressed confidence that the economy “has quite a long ways to go” in its expansion.  US Treasury prices sold off following Dudley’s speech, and yields/swap rates are currently up 3-5 bps across the curve, bringing the yield on the 10-year note up to 2.19%.  All major US stock indices are trading in positive territory to begin the week, with the tech-heavy Nasdaq (+1.35%) leading the way and the S&P 500 (+0.75%) reaching a new record high.  The US dollar also gained on the day, up 0.4% against major currencies.  In the commodity sector, crude oil futures declined as energy markets continue to struggle with the surplus in output/inventories amongst oil producing nations.  WTI crude and Brent crude futures have now fallen more than 13% over the past three weeks, with the price per barrel decreasing to $44.50 and $47.10, respectively.

Abroad, the political party of French President Emmanuel Macron solidified its presence in the National Assembly on Sunday, winning 350 of the 577 seats in the legislative election, which featured the lowest French voter turnout on record (42.6%).  Now armed with the largest majority in the past 15 years, the pressure is on the Macron administration to deliver on the sweeping reforms promised during his campaign, with several new labor market policies expected to be put in place by September.  France’s existing labor code has been pointed to as the reason why unemployment in the nation is more than double that of Germany and the UK and growth has been below the euro-area average.  The new French parliament was welcomed by the leaders of Germany and the European Commission after the results of yesterday’s vote came in, viewed as likely to strengthen France’s ties with the EU, just as England’s Brexit negotiations with the EU are set to begin.  Major stock indices in Europe closed mostly higher on the day despite being weighed down by the news of yet another terrorist attack in London this morning, which once again involved a van driving into a group of bystanders.