FED: Minutes Clearly Signal A July Hold, While Keeping Future Options Open
Jul-09 18:53
The June meeting minutes captured a Committee that was leaning in a slightly more hawkish direction than earlier in the year, though probably no moreso than should have been expected. The Dot Plot released at the meeting already captured most of the story: a divided Committee retains its overall easing bias but needs varying degrees of certainty before supporting a resumption of the easing cycle.
- The main headline from the minutes was on the Committee's split on the rate outlook, which was encapsulated in the Dot Plot mostly split between two and zero cuts for the year.
- "Participants generally agreed that, with economic growth and the labor market still solid and current monetary policy moderately or modestly restrictive, the Committee was well positioned to wait for more clarity on the outlook for inflation and economic activity." "Most participants" thought a cut later this year would "likely be appropriate" with "some" seeing the "most likely appropriate path" being a hold through year-end, neither of which is a surprise given the Dot Plot.
- The primary area of interest within the rate outlook was whether anyone else on the Committee would join Waller and Bowman in supporting a July cut, and it turns out not: "A couple of participants noted that, if the data evolve in line with their expectations, they would be open to considering a reduction in the target range for the policy rate as soon as at the next meeting." With the Minutes taking no effort to massage this message, we take it as a clear signal that the Committee has no intention of cutting rates in July.
- With tariff policy crystallizing a little more clearly and uncertainty diminishing slightly, opinions were mixed as to the implications for the dual mandate targets. A minority clearly was concerned about labor market weakness, while it was interesting that "some" saw inflationary risks as gaining in importance vs employment since the May meeting. "Some participants commented that they saw the risk of elevated inflation as remaining more prominent, or as having diminished by less, than risks to employment. A few participants saw risks to the labor market as having become predominant."
- Overall the discussion of various risk scenarios to inflation and to the labor market/activity remained open-ended, providing optionality to act or not act according to incoming data and developments.
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COMMODITIES: Crude Rises, Metals Gain As US-China Talks Begin
Jun-09 18:47
- Crude prices are higher today, as risk sentiment has remained supported by US-China trade talks in London.
- Ahead of the talks, President Trump authorised Treasury Secretary Bessent's team to negotiate away recent restrictions on the sale of a wide variety of technology and other products to China, according to people familiar with the matter.
- WTI Jul 25 is up by 1.2% at $65.4/bbl.
- WTI futures traded higher last week, resulting in a clear break of resistance around the 50-day EMA. The climb signals scope for an extension towards $65.82, the Apr 4 high, followed by $71.10, the Apr 2 high and key resistance.
- It is still possible that the recovery since early May is a correction, and support to watch lies at $59.74, the May 30 low.
- Meanwhile, spot gold has risen by 0.7% to $3,334/oz, amid a moderately weak US dollar.
- A bullish theme in gold remains intact and a continuation of gains would refocus attention on $3,435.6, the May 7 high.
- Elsewhere, copper has also rebounded by 1.4% to $492/lb, as the red metal remains supported by a drop in inventories and disruptions to supply.
- Copper futures breached resistance at $498.25, the Apr 23 high last week, undermining the recent bearish theme and signalling scope for an extension higher near-term. This has opened $509.85, a Fibonacci retracement.
- On the downside, a pivot support is seen at $474.84, the 50-day EMA
US TSY OPTIONS: Jul'25 10Y Put Buy
Jun-09 18:45
- +10,000 TYN5 108.5 puts, 3 vs. 110-04.5/0.05%
US FISCAL: CBO Estimates Widening Deficit Through May; X-Date Mid-Aug/End-Sept
Jun-09 18:42
The Congressional Budget Office (CBO) estimates a federal deficit of $314B in May, which if confirmed in Wednesday's Treasury statement would mean the size of the deficit through the first 8 months of the fiscal year (Oct-Sep) came in at $1.363T. That would maintain the highest running total since this point of 2021, and up over $160B from $1.202T in the same period of the prior fiscal year.
- The CBO makes the point that timing effects actually make this year's deficit look a little worse. Taking into account various shifts, "the deficit so far this fiscal year would have been $84 billion (or 7 percent) more than the shortfall at this point last year".
- But overall, revenues increased by $196B (6%), overrun by outlays rising by $357B (8%). There is also this note re tariffs: "Receipts from other sources rose by $43 billion (or 29 percent) relative to the same period last year. Customs duties increased by $30 billion (or 61 percent)...Excise taxes increased by $11 billion (or 18 percent)."
- The CBO "now estimates that if the debt limit remains unchanged, the government’s ability to borrow using extraordinary measures would probably be exhausted between mid-August and the end of September 2025. That estimated range begins about two weeks later than the agency estimated in
March 2025." - We await Wednesday's official figures to confirm - though CBO was only $2B off April's official figure in their early estimate ($258B surplus vs $256B CBO est).
