US initial jobless claims fell for a third straight week, returning to a middling range relative to recent history. The decline in recent weeks suggests that the labor market will remain resilient, providing the Federal Reserve with support for delaying interest-rate cuts.
In a dizzying year of economic news, along with numerous twists and turns in financial markets, the performance leadership for the momentum factor stands out as a hardy perennial year to date. This equity risk factor continues to outperform the rest of the field, as well as the broad US stock market, based on a set of ETFs for year-to-date trading through yesterday’s close (July 9).
Global financial markets are becoming “desensitized” to President Donald Trump’s tariff decisions, advised CGS International Securities Group Chief Executive Carol Fong. “Look what happened in the last two days when the tariff (deadline) lapsed, the market didn’t react badly and I think the market itself has been a bit desensitised”. In the US, shares traded up on Wednesday and the S&P 500 Index closed just below a record high that was reached earlier in the week.
There are numerous ways to predict economic and market outcomes, each with its own set of pros and cons. One of the more recent arrivals in the realm of trying to divine the future is the rise of prediction markets — platforms where individuals can wager on the outcome of future events and track the estimates in real time. The future’s still uncertain and no one has a crystal ball, but monitoring the estimated probabilities for various macro events offers another source of analytics, if only to compare with the implied probabilities from the usual suspects. On that basis, here’s the first installment for what will be a periodic review of wagers for several economic and financial expectations. The sources for this update: Polymarket and Kalshi. Meanwhile, one thing that hasn’t changed for predictions from any source: Caveat emptor! Note, too, that the predictions shown below reflect a moment in time (earlier today). For the latest updates, click on the links.
The recent decline in the US economic growth rate below the level of the interest paid on the national debt is a warning sign, writes Jared Bernstein, who was chair of President Biden’s Council of Economic Advisers. “The interest rate our country pays on its debt has increased sharply, driven in part by government spending during the pandemic and by higher inflation. It’s shot up so much that it is now equal to our growth rate. That’s a potential game changer for debt sustainability.”
The US economy remains on track to rebound in the second quarter after the modest contraction in Q1, but the expected bounce has downshifted, based on the median estimate for a set of nowcasts compiled by CapitalSpectator.com.
Trump announced new tariffs set to begin on Aug. 1. Imports from some of America’s biggest trade partners are targeted, including Japan and South Korea, which are set to face 25% tariffs, according to the President’s social media posts on Monday.
The week ahead will provide early clues for two very different risk factors looming for the bond market.
On the one hand, the on-again/off-again risk of tariffs is lurking – a development that could create new economic headwinds that soften growth and, in theory, lower interest rates as investors seek safe havens and the Federal Reserve eases its policy stance to provide stimulus. But tariffs could also lift inflation, perhaps persuading the Fed to keep rates higher for longer if not raise rates. Deciding which aspect of the tariff effect will dominate is tricky for several reasons, including ongoing ambiguity about when or if tariffs will change and uncertainty about the macro price tag associated wiht raising import costs.
US payrolls rose more than forecast in June, increasing 147,000 for the month. “The solid June jobs report confirms that the labor market remains resolute and slams the door shut on a July rate cut,” said Jeff Schulze, head of economic and market strategy at ClearBridge Investments. For the 1-year trend, payrolls effectively held steady at a 1.15% pace of growth, in line with gains in recent months.
When in the course of human events this week, it becomes necessary for yours truly to dissolve the usual routine and declare a particular truth to be self-evident: A long July 4 holiday weekend is an unalienable right, and so the Capital Spectator finds it necessary to declare independence from the office until the standard fare resumes on Monday, July 7. Happy Independence Day!