Trump and Powell Dominate Today’s Headlines

Trump re-election odds sway markets. The swap curve steepened today on rising momentum that former President Trump will retake office, largely driven by this weekend’s failed assassination attempt. Many believe that Trump’s preference for tax cuts, increased tariffs, and reduced regulation could lead to economic growth and additional inflationary pressures, which pushed the long end of the curve 5-6bps higher. The short end of the curve was little changed, with the 2y Treasury yield trading within a 5bp range today. Meanwhile, Trump announced current Ohio Senator JD Vance as his running mate.

Powell points to a “better balance” within Fed’s dual mandate. Fed Chair Jerome Powell offered dovish comments today that stemmed from recent economic data, which showed decelerating price pressures, a downward revision in jobs added, and rising unemployment. Powell suggested that the labor market will play a larger role in the Fed’s policy outlook, as he stated, “Now that inflation has come down and the labor market has indeed cooled off, we’re going to be looking at both mandates… they’re in much better balance.” He added that an “unexpected weakening” in the labor market could spur earlier rate cuts, especially given greater confidence that inflation is decelerating.

Chinese growth hits multi-year low. 2Q24 GDP figures released today showed the Chinese economy expanded 4.7% on a year-over-year, below survey estimates and the lowest since the 2.9% growth recorded in 4Q22. The decline was driven by weaker consumer spending, with retail spending falling to a recent low of 2%. The results come as government officials convene for a long-term economic policy meeting which occurs twice every decade. Chinese stocks fell on the release, with the Hang Seng index closing ~1.7% lower.