Source: Cailianshe Author: Xiaoxiang

The US bond market temporarily ended the sell-off caused by the increased probability of Trump's victory, and the yield of benchmark 10-year US bonds fell slightly. The stability of the bond market that day benefited largely from the "dove sound" from the Fed. Looking ahead, the US financial market will close early due to the Independence Day holiday on Thursday. On the news front, the minutes of the Fed, which will be released in the early hours of Thursday, are expected to be a major focus.

Market data shows that overnight yields on US bonds with various maturities fell across the board. Among them, the 2-year US bond yield fell 1.4 basis points to 4.752%, the 5-year US bond yield fell 3.3 basis points to 4.399%, the 10-year US bond yield fell 3 basis points to 4.438%, and the 30-year US bond yield fell 2 basis points to 4.607%.

On Tuesday at the Sintela Annual Forum of the European Central Bank, Fed Chairman Powell, who spoke, still refused to give any specific guidance on the timing of the first interest rate cut, but his statement seemed to show a more "dovish" side: Powell made it clear that the Fed had made considerable progress in bringing inflation back to its policy goal.

Regarding the most important interest rate cut move, Powell stated that " we have made considerable progress in bringing inflation back to our policy goals. The most recent (inflation) data, as well as the previous data (slightly less), both indicate that we are returning to the path of falling inflation. Before we start to relax (monetary) policy, we would like to be more certain that inflation is continuing to fall and is close to 2%."

According to data released last Friday, the year-on-year increase in US core PCE inflation in May fell to 2.6%, breaking the previous three-month stagnation. This also caused Powell to repeatedly praise this as "significant progress."

However, Powell still refused to provide any specific information on the timing of the Fed's first interest rate cut. When asked if the Fed might cut interest rates in September, Powell said, "I won't commit to any specific date right now." Powell was also asked whether he hoped the dot plot would show two interest rate cuts this year or just one, but he also declined to comment on the 2024 interest rate expectation dot plot.

Influenced by Powell's speech, US Treasury yields extended their decline in intra-day trading, and the US dollar index also fell to its intraday low. In the stock market, the Nasdaq and S&P 500 indexes hit new closing highs again—the Nasdaq closed above 18,000 points for the first time and the S&P 500 index closed above 5500 points for the first time.

Prominent reporter Nick Timiraos, known as the "New Fed News Agency," said that Powell was satisfied with the recovery of US inflation from the rebound at the beginning of the year in his latest speech. The market expects the Fed to cut interest rates in late summer, but Powell refused to explicitly endorse this. Powell's speech highlighted a cautious and optimistic sentiment, which had faded after disappointing inflation data was released in April this year.

It is worth mentioning that at the Sintela Annual Forum of the European Central Bank, Chicago Fed Chairman Guolsby, who has always been dovish, gave a speech on Tuesday supporting interest rate cuts again. Guolsby said that interest rate cuts should be considered in the coming months because maintaining the current policy rate level would put greater downward pressure on demand as inflation continues to fall.

Guolsby said that in the case of continued downward pressure on inflation, maintaining the current policy rate level would actually tighten monetary policy by putting greater downward pressure on demand.

In terms of economic data, the latest US job opening data released on Tuesday unexpectedly rose, which means that the previous downward trend of slowing labor demand has temporarily stopped. Data shows that the number of job vacancies rose from 7.92 million in the previous month (revised down) to 8.14 million, and the previous month's data was the lowest in three years.

So far, strong recruitment has helped the US economy withstand the test of the Fed's aggressive tightening policy. However, some industry insiders are worried that with the inflation rate still remaining higher than the Fed's target level of 2%, any further softening of the labor situation could trigger a snowball effect and pose risks to economic growth.

Regarding the current situation of US bond yields, Brian Jacobsen, chief economist at Annex Wealth Management, said, "Powell and macro data pushed yields slightly lower on Tuesday, but political factors and the uncertainty of the government deficit under Republican control continue to support yields as a whole."

Looking ahead, various trading varieties in the US financial market will close early today due to the Independence Day holiday on Thursday. However, on the news front, the release of the Fed's minutes is still worth paying attention to by investors.

In its recent report, Morgan Stanley pointed out that, "if this memo reveals more about what makes FOMC members believe that progress has restarted in the decline of inflation, and to what extent FOMC members consider the policy trade-offs between inflation and growth, then this report could have a significant impact."

According to Goldman Sachs, clues about whether the Fed has begun to pay closer attention to economic growth may also help determine whether the Fed may tolerate higher inflation.

Editor/Lambor