ACTV - Week Ahead: Market Eyes 2 Fed Cuts This Year Ahead Of June CPI

2024-07-06 08:35:00 ET

Summary

• With the June employment data out of the way, the focus this week shifts back to prices, with the CPI and PPI on tap.
• The Dollar Index was turned down from the 106.00 area early last week after losing some momentum into the quarter-end.
• Given the tactical adjustment of both the left and moderates in France, the number of three-way run-offs fell to slightly more than 100.
• Sterling reached nearly $1.2820 ahead of the weekend; its best level since June 12.

Four drivers are shaping the investment climate. First, ahead of the run-off elections in France, the market feels more comfortable that Le Pen will not secure a parliamentary majority. The French premium over Germany narrowed to 65 bp, falling by about 14 bp last week, and arguable a supportive factor for the euro. Second, the British election was largely a foregone conclusion, and Labour did secure majority. It ought not be construed as a shift to the left as Labour received less than 2% more votes than it did in 2019 and the party's manifesto has shifted to the center, which itself appears to have moved to the right. The swaps market slightly raised the likelihood of an August cut (~68% vs. 65%), a September cut (98% vs. 88%) and two cuts this year (98% vs. 80%) over the course of the past week....

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