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Bob Carey
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  US Economy and Credit Markets Ended July 9, 2021
Posted Under: Weekly Market Commentary

U.S. government bonds rallied last week before yields rebounded on Friday as markets reconsidered bets on high economic growth and inflation, known as the reflation trade. The lower-than-expected reading of the ISM Services Index released on Tuesday particularly dampened the growth outlook. Despite missing expectations, the data showed the service sector continued to expand rapidly in June, albeit at a slower pace than May's all-time high. Hiring challenges, materials shortages, and inflation all limited June's expansion. Meanwhile, Fed minutes released last week showed a more hawkish Federal Reserve that might be willing to taper stimulus and raise interest rates earlier than expected. Concerns about Covid-19's Delta variant also dampened growth expectations and contributed to the bond rally. This week, the June Consumer Price Index reading will be released on Tuesday, the first since it rose 5% in May from a year earlier. Markets are currently pricing in the Fed's view that the high inflation rate is temporary. A rally in high yield markets, for example, recently pushed yields on below investment grade debt below May's year-over-year inflation rate. Major economic reports (related consensus forecasts, prior data) for the upcoming week include Tuesday: June CPI MoM (0.5%, 0.6%); Wednesday: July 9 MBA Mortgage Applications (N/A, -1.8%), June PPI Final Demand MoM (0.5%, 0.8%); Thursday: July 10 Initial Jobless Claims (350k, 373k), June Industrial Production MoM (0.6%, 0.8%), July Empire Manufacturing (18.4, 17.4); Friday: July Preliminary U. of Mich. Sentiment (86.5, 85.5), June Retail Sales Advance MoM (-0.4%, -1.3%).
Posted on Monday, July 12, 2021 @ 8:32 AM • Post Link Share: 
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