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Unsurprising Fed minutes push yields higher

Odds on another rate hike at the Federal Reserve’s July meeting were left slightly higher yesterday after a record of June’s discussion showed officials were modestly more hawkish than expected. Staff forecasts pointed to a deceleration in growth and price pressures through the latter half of the year, and there was considerable uncertainty about where the cumulative effects of previous tightening efforts would appear, but “almost all” agreed that rates would need to climb further this year – and some favoured moving more quickly because “momentum in economic activity had been stronger than earlier anticipated and there were few clear signs that inflation was on a path to return to the committee’s 2-percent objective over time”.

Markets are putting in a mixed performance, with equities softer and Treasury yields moving up, even as oil and iron prices firm and the dollar weakens against its rivals. Both the euro and pound are inching higher as yields move up in sympathy with their US equivalents, and the Canadian dollar is firmly rangebound.

Markets think 245,000 people submitted new applications for unemployment benefits in the week ended July 1, up slightly from the 239,000 reported for June 24 – but there are risks to the topside, given that the Juneteenth holiday might have skewed numbers lower in the prior week.

The May Job Openings and Labor Turnover Survey, out at 10:00, should show the number of posted vacancies slipping back below the 10 million mark after surprising to the upside in April. Quit rates – a critical indicator of labour market tightness – likely declined further, as fewer Americans voluntarily left their jobs.

Due for delivery at the same time, the ISM services index is seen holding slightly above the 50 threshold that distinguishes expansion from contraction. Nowcast forecasts suggest that new orders and business activity picked up slightly from the prior month, but that fears of an incipient slowdown kept growth in check.

Meeting minutes from the Bank of Mexico’s June gathering are likely to show policymakers growing more aligned on the need to hold rates for a prolonged period. Recent inflation data has shown clear evidence of price deceleration and growth risks are rising.

Tomorrow, consensus estimates suggest that the Bureau of Labor Statistics will report that 225,000 people were added to non-farm payrolls in June – but after 14 consecutive upside surprises, the whisper number is pointing toward the 260,000 mark. We suspect meaningful revisions are coming at some point, but identifying the timing has proven terribly difficult thus far.

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