The yield curve between the two-year and 30-year Treasury is the steepest since 2021, partially the result of the possibility that inflationary pressures may become unanchored. A strong argument can be made that if the President succeeds in jawboning/bludgeoning the Fed to lower the overnight rate, long term interest rate could go in the opposite of the intended direction.
While most believe no governmental entity is apolitical, the President’s constant berating of the Fed Chair to lower interest rates and the recent firing of Fed Governor Cook is intervention that has not yet been experienced. The President can be setting a dangerous precedent.
The Fed’s perceived independence from government whims is a bedrock assumption of US markets and any changes to that perception could weigh on US credit rating.
There is risk of a more politicized Fed over the next 6-12 months, and this risk could be amplified if partisanship grows amongst regional Fed presidents and governors.
Ultimately, however, interest rates are determined by current and expected inflationary expectations, amplified by the demand for funds and the perceived ability to service and repay the obligation.
Speaking of which, consumer confidence fell slightly in August as more are worried about their prospects of finding a job. The decline however was smaller than expected and the gauge exceeded any published estimate. The share of consumers that said jobs were hard to get rose for a second month to the highest since 2021. The share saying jobs were plentiful was little changed.
Next week is the release of the monthly jobs report and the JOLTS labor survey. The data to date indicate there are ample jobs available (about 1.3 jobs for every unemployed worker), however the question at hand is what type of jobs are available and why these vacancies are not being filled.
Commenting on Capital Goods orders, core orders also exceeded any published estimate suggesting companies are moving forward on investment plans regardless of uncertainty around trade and tax policy.
Equites were relatively unchanged as perhaps many are delaying any type of commitment until today’s release of NVDA’s earnings. Because of NVDA’s mammoth capitalization, it has the potential to greatly influence the direction of the indices.
Last night the foreign markets were mixed. London was up 0.01%, Paris up 0.51% and Frankfurt down 0.03%. China was down 1.76%, Japan up 0.30% and Hang Seng down 1.27%. Futures are flat. Expectations are sky high for NVDA’s earnings announcement after today’s close. The 10-year is off 1/32 to yield 4.27%.
