You do the funny and I bring the money

Another record close for US stocks despite the 30-year Treasury yield climbing above 5% and the 10-year yield touching 4.5%. Better-than-expected US retail sales data is being blamed this time for the continued rise in US stocks. Meanwhile, back in the UK, the latest UK employment data recorded another rise in the unemployment rate. Wage inflation cooled to 5% year-over-year, but the theme of fewer people getting paid more money remains. UK inflation rate rising to 3.6%, above the 3.4% economists had forecast, making the Bank of England’s job even harder when it comes to setting interest rate policy. Do they focus on weaker growth, hoping inflation will eventually return to the 2% target, and cut now or wait for signs that inflation rates are falling before acting?

The two-year gilt and the 2-year US Treasury yields are virtually the same, at just over 3.9%. The market is assigning an almost zero probability to the Fed acting at the end of the month, but for the UK, the odds are about 50/50, I would suggest.

Fed Chair Powell’s position remains precarious, as Trump tested the market this week by floating the idea that he was considering relieving him of his post. The market reaction was relatively muted, as Trump then appeared to dampen speculation. I imagine Trump will hope Powell jumps, as he probably would want to avoid having to push him, which could lead to accusations of influencing Fed policy and undermining the Central Bank’s independence.

The first week’s earnings season produced few surprises, but one company saw the benefit of the weaker US dollar, as Johnson and Johnson raised their guidance for the year, mainly due to the currency tailwind, which helped the share price rise. Later today we get Michigan Consumer confidence and inflation expectations. We shall see if that pushes the Fed closer to a rate cut. As for now stocks in Europe look like opening in a positive mood.