DoubleLine Podcasts

MMM Episode 77: Surprising Jobs Strength, Fed Reactions, Market Reflections

Jeff Mayberry and Samuel Lau start their review of the Aug. 1-5 week with a positive if slight 40 basis point return for the S&P 500 (2:15), led by tech, up 2%, while energy stocks fell nearly 7%. Turning to fixed income (3:18), surprisingly strong employment readings Friday raised expectations of more tightening by the Federal Reserve. The two-year Treasury yield, which historically has anticipated levels in the Federal Funds rate, was up 34 basis points week-over-week, 18 bps of that coming Friday, to 3.23%. The high-grade bond market as represented by the Bloomberg US Aggregate Bond Index fell 1.1%. With high yield corporate credit returning a positive 20 bps, emerging markets debt 90s bps and bank loans 1.3%, Samuel Lau noted bank loans are “getting pretty close to that zero-to-positive year-to-date number.” The Bloomberg Commodity (7:57) was down 3.2%. Some of the meats and a few of the industrial metals were up on the week. Much of the red ink was in energy, with West Texas Intermediate crude down 10%.

For the week’s macro news, along with strong nonfarm payroll and unemployment reports (12:59), Jeff Mayberry took note of positive and stronger-than-expected ISM reports (10:11) for manufacturing and services in July. As of Friday, Jeff Mayberry noted (17:45), the Fed Funds futures were pricing in 69 bps of a 75 bp hike at the meeting of the Federal Open Market Committee on Sept. 20-21. For the week of Aug. 8-12 (20:05), Jeff and Sam will be looking out for the July CPI report on Wednesday, the July PPI on Thursday and, because Fed Chair Jerome Powell looks at it, the University of Michigan’s preliminary inflation expectations survey on Friday.

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