629 Market Talk Have traders misread the Fed YouTube

No major data or decisions this week, but how much can we still learn from the Fed? The spotlight stays on the Fed this week, with investors looking for clues from Kevin Walsh's first meeting. Yields are edging lower after last week's weaker-than-expected payers report boosted bets that the Fed will stay on hold this month. But Wednesday's minutes could tell a different story, reflecting a more hawkish mood. So have the markets moved on from the Fed's own thinking? Well, let's ask Laura Cooper, Head of Macro Credit at Naveen. So Laura, let's start with last week's non-farm payrolls report. Hiring slowed sharply in June, even as the unemployment rate fell. Does this suggest that the labour market is losing momentum? Is it enough to shift the Fed away from its hawkish stance? So the payrolls print that we did see for June was a very weak headline number, as well as revisions to previous months, and yes, that does suggest that the job market is losing momentum. But we're not necessarily seeing any signs of imminent cracks in a still fairly resilient labour market. I think what it does add is conviction to this low-hiring, low-firing backdrop. We still have job openings remain elevated, layoffs are easing, the unemployment rate remains low. So I don't think there's anything that warrants a shift in the Fed's current hawkish stance, predominantly because they are focused more on their inflation side of the mandate. Well, investors will also be watching whether to see a Kevin Walsh's pledge to shake up Fed communications does extend to the minutes. So after a much shorter policy statement, should we expect even less clues about what the Fed's thinking this Wednesday? I suspect that is going to be the trend of Fed communication going forward. I think for the minutes this week in particular, markets will be watching for the length and the composition of this statement, trying to parse through any signs that we could see, you know, the reasoning behind this great divergence across FOMC members. But I suspect if the FOMC's statement is any clue, we're going to really struggle for meaningful signs of guidance from the Fed. And I think that sets up just for greater volatility going forward. Well, Walsh has called the division that the Fed's good family fights over rates. So as his tenure progresses, do you expect policymakers to become more aligned or could divisions deepen? I think that's a key question that market participants are facing. And I think the degree of divergence that we are seeing come from the Fed just captures this heightened degree of uncertainty that we're currently facing in the macro backdrop. But I think, though, as we start to see more data come through, whether we start to see inflation showing meaningful signs of easing, whether the jobs market continues to remain resilient, then this data dependent Fed, perhaps we will see more of a convergence as they do focus on the evolution of what the signs are for the health of the economy. But I suspect in the near term, given the different kind of views of Fed members, we're probably going to see this kind of disagreement, I think, persist. Well, the Treasury market faces another test this week with auctions of 10 and 30 year bonds. So how important will investor demand be? And if the auctions disappoint, can we really just blame the US holiday? Well, it's very difficult to gauge the demand for Treasuries around a long weekend like we've had, which tends to actually distort some of these auctions. And I think so there is a greater risk that we could see the auctions tail this week in particular. But I think overall, we are still seeing fairly resilient signs of demand for the Treasury market, despite all of the factors that we've had to face this year from the geopolitical backdrop to the inflation dynamics. And so I think this week we can glean little, I would say, from the auctions themselves. So finally, Laura, JP Morgan's mid-year outlook sees the 10-year Treasury yields ending the year at 4.7%. Does that look achievable to you? I think we have seen the Treasury market rally off the peaks of those post-conflict highs. We saw the 10-year yield hit that near 4.7% mark earlier this year. But I think this confluence of factors going forward suggests probably more of a range-bound trade. Our view is around 4.25% to 4.50% through the end of the year. We still have near-term inflation pressures, less so from the energy shock, but more so in terms of this AI inflation trade. There's also some uncertainty about what the Fed next move could be. That kind of warrants a greater degree of caution priced into yields. And of course, there's a fiscal backdrop with the midterms coming up later this year. And the fiscal really does warrant this higher-for-longer yield backdrop. So I think that's going to continue to be a dominant theme. But a point forecast, I think, is a little bit tricky, given the uncertainty at this juncture. That was Laura Cooper from The Vein. Don't forget, you can watch more videos on Reuters.com.