Bassanese Bites: Rate surge – July 10 2023
Global markets
The key development over the past week was ongoing solid US economic reports, which along with hawkish Fed minutes saw bond yields move notably higher. US 10-year bond yields rose by 0.22% to 4.07% – a new high for the year though still a bit below the peak of 4.24% in late October 2022. Equity markets retreated under the weight of higher interest rates, though only modestly, with the S&P 500 down 1.1% over the week.
As I warned last week, it now seems “perhaps the greater near-term risk to markets is not that the US economy suddenly slips into recession, but that it remains too strong or reaccelerates – particularly the labour market.”
A key global focus this week will be the US CPI. While inflation is expected to continue to ease, core inflation is likely to remain stubbornly high and markets will be particularly sensitive to any upward surprise. The US earnings season also begins, though good earnings may not be as market supportive this time around given new concerns over an overly strong economy.
