Bond Market Update

To fire or not to fire? That is the question.

• U.S. Treasuries had an exciting cash session, alternating between the inflation optimism that followed a relatively tame-looking June PPI report and the inflation angst surrounding reports that President Trump may soon fire Fed Chair Powell, with the implication that any new appointee would be quick to advocate for a lower interest rate regime. The president, himself, said in an Oval Office interview with the press pool shortly after those reports circulated that he wouldn't rule out anything, but that it is highly unlikely that he will fire Fed Chair Powell, unless there is fraud. Selling pressure abated after that clarification, with yields moving back toward their post-PPI lows in a curve-steepening trade that saw shorter-dated securities outperform longer-dated maturities. The U.S. Dollar Index was down 0.2% to 98.41.
• Yield Check:
  • 2-yr: -7 bps to 3.89%
  • 3-yr: -7 bps to 3.86%
  • 5-yr: -6 bps to 3.99%
  • 10-yr: -3 bps to 4.46%
  • 30-yr: unch at 5.02%

• News:
  • President Trump, in Oval Office, tells press pool he is not ruling out possibility of firing Fed Chair Powell but says it is highly unlikely, unless there is fraud
    • Clarification came after news reports indicated the president may soon fire Fed Chair Powell
  • President Trump will sign executive order to make private investments available in 401K plans, according to The Wall Street Journal
  • Senate votes to advance legislation that cuts $9 bln from foreign aid and public broadcasting to a final Senate vote later today, according to The Wall Street Journal
  • President Trump says that pharma tariffs are likely by August 1, and chip tariffs will also be implemented, according to Bloomberg
  • Fed's Beige Book says economic activity increased slightly from late May through early July, with five districts reporting slight or modest gains, five report flat activity, and two noting modest declines
  • Treasury Secretary Bessent said that the U.S. isn't going to rush deals because of some market deadline, like the August 12 pause expiration for China, according to Bloomberg
  • CMS announces proposed rules for hospital payments in 2026
  • Chip equipment maker ASML saying it cannot confirm if it will deliver growth in 2026 due to the uncertainty driven by macroeconomic and geopolitical developments
  • Dallas Fed President Logan (non FOMC voter) says Fed should keep rates where they are for now to help get inflation to sustainable target but acknowledges may need to cut if there is a combination of softer inflation and a weakening labor market, according to Bloomberg
  • MBA Mortgage Applications Index -10.0% wk/wk, with refinance applications down 7% and purchase applications down 12%
  • U.K.'s June CPI 0.3% m/m (expected 0.2%; last 0.2%) and 3.6% yr/yr (expected 3.4%; last 3.4%); June Core CPI 0.4% m/m (expected 0.2%; last 0.2%) and 3.7% yr/yr (expected 3.5%; last 3.5%)
• Today's Data:
  • The index for final demand was unchanged month-over-month in June (Briefing.com consensus: 0.2%) following an upwardly revised 0.3% increase (from 0.1%) in May. The index for final demand, less foods and energy, was also unchanged month-over-month (Briefing.com consensus: 0.2%) following an upwardly revised 0.4% increase (from 0.1%) in May.The index for final demand was up 2.3% year-over-year, versus 2.7% in May, while the index for final demand, less foods and energy, was up 2.6% year-over-year, versus 3.2% in May.
    • The key takeaway for the market is the disinflation seen on a month-over-month and year-over-year basis. That is clearly moving in the Fed's preferred direction, and the unchanged readings for June should foster good thoughts about what the PCE Price Index for June will show when it is released.
  • Industrial production increased 0.3% month-over-month in June (Briefing.com consensus 0.1%) following an upwardly revised unchanged reading (from -0.2%) in May. The capacity utilization rate was 77.6% (Briefing.com consensus 77.4%), versus an upwardly revised 77.5% (from 77.4%) in May. Total industrial production increased 0.7% yr/yr while the capacity utilization rate was 2.0 percentage points below its long-run average.
    • The key takeaway from the report is that the jump in industrial production in June was driven mostly by an increase in the output of utilities, which tends to be volatile based on weather conditions. Manufacturing output was up, but only by a modest 0.1% despite a more conciliatory tariff environment.
• Commodities:
  • WTI crude: -0.3% to $66.36/bbl
  • Gold: +0.7% to $3359.50/ozt
  • Copper: -0.9% to $5.53/lb
• Currencies:
  • EUR/USD: +0.2% to 1.1624
  • GBP/USD: +0.2% to 1.3407
  • USD/CNH: unch at 7.1813
  • USD/JPY: -0.6% to 147.99
• The Day Ahead:
  • 08:30 ET: June Retail Sales (Briefing.com consensus: 0.2%; prior -0.9%) and Retail Sales, Ex-Auto (Briefing.com consensus: 0.3%; prior -0.3%)
  • 08:30 ET: Initial Jobless Claims (Briefing.com consensus: 230K; prior 227K) and Continuing Jobless Claims (prior 1965K)
  • 08:30 ET: June Import Prices (prior 0.0%), Import Prices, Ex-Fuel (prior 0.3%), Export Prices (prior -0.9%), and Export Prices, Ex-Ag (prior -1.0%)
  • 08:30 ET: July Philadelphia Fed Index (Briefing.com consensus: -0.2; prior -4.0)
  • 10:00 ET: July NAHB Housing Market Index (Briefing.com consensus: 32; prior 32)
  • 10:00 ET: May Business Inventories (Briefing.com consensus -0.1%; prior 0.0%)
  • 10:00 ET: Fed Governor Kugler (FOMC voter)
  • 10:30 ET: EIA Natural Gas Inventories (prior +53 bcf)
  • 12:45 ET: San Francisco Fed President Daly (non FOMC voter)
  • 13:30 ET: Fed Governor Cook (FOMC voter)
  • 16:00 ET: May Net LT TIC Flows (prior -$7.8B)
  • 18:30 ET: Fed Governor Waller (FOMC voter)