Aurelia Butler

Headline inflation came in slightly above a market forecast of 5.02%, but is now at its lowest since March 2021.Consumer prices fell 0.10% in June from May, according to non-seasonally adjusted figures, against an expected drop of 0.09%.The closely watched core price index, which strips out some volatile food and energy prices, rose 0.30% during the month.Annual core inflation in May, considered a better gauge of price trends because it excludes some highly volatile items, was 6.89%, forecast had predicted 6.87%.The Bank of Mexico’s governing board said its benchmark interest rate is likely to remain on hold at 11.25% for an “extended period,” minutes from the bank’s last monetary policy meeting showed, as inflation remains “complex.”Mexico’s central bank, also known as Banxico, unanimously held its benchmark interest rate steady at the meeting for a second time, after a nearly two-year rate-hike cycle in which it raised the rate by 725 basis points to combat inflation.Banxico has been repeating the message that rates will need to remain on hold in order to bring inflation down to its 3% target, which most of the bank’s five board members forecast will happen in the fourth quarter of 2024. More

Jobs growth in the US slowed more than expected in June and was revised lower for the previous two months, in a sign the Federal Reserve’s aggressive interest rate rises are beginning to cool the labour market.The US economy added 209,000 new non-farm jobs last month, lower than consensus forecasts of 225,000, though still comfortably above its pre-pandemic average.Growth over April and May was also revised lower by a combined 110,000.The unemployment rate, however, remained near a multi-decade low, falling back to 3.6 per cent after a slight rise in May.Employment and wage growth are significant drivers of inflation, particularly in the services sector. Friday’s numbers will be scrutinised by investors, economists and central bank officials, who are watching for evidence that the Fed’s interest rate rises are beginning to affect the economy.Although headline inflation numbers have started to trend downward, the labour market has proven resilient, with economists underestimating the strength of payrolls growth for 14 consecutive months before Friday’s data.Hourly wage growth rose 4.4 per cent on an annual basis, well above the roughly 3.5 per cent rate that most economists think is consistent with meeting the Fed’s 2 per cent inflation target.The central bank kept interest rates steady at its last policy meeting in June to give officials more time to take stock of the impact of its previous rate rises and the potential effects of recent turmoil in the banking sector.

However, policymakers have made clear that they are not yet done with their monetary tightening campaign, with most officials predicting two more quarter-point rate rises by the end of the year.Futures markets were pricing in an almost 90 per cent chance of a rate increase at the Fed’s next meeting in late July before Friday’s data were released, and economists at Citi predicted that even a much lower headline figure of around 170,000 would be “still easily strong enough for the Fed to raise rates in July”.Separate private sector jobs data published on Thursday reinforced those expectations, driving the yield on two-year Treasury notes to its highest level since 2007.Still, Drew Matus, chief market strategist at MetLife Investment Management, said that “if [officials] were so certain they needed to move again, they would have done it at the last meeting. There has been some element of doubt in their minds about what they’re seeing.”Additional reporting by Colby Smith in Washington More

Here’s a look at the week ahead in markets from Lewis Krauskopf and Nupur Anand in New York, Li Gu in Shanghai, Kevin Buckland in Tokyo, and Naomi Rovnick and Amanda Cooper in London.1/ UNDER PRESSUREMarkets have come around fast to the Fed’s view that instead of being cut anytime soon, rates will remain high for longer. After another brutal bond sell off, focus turns to Wednesday’s U.S. inflation data. Price pressures have been easing but perhaps not fast enough with a July rate hike seen as likely.May CPI data showed the smallest year-on-year increase since March 2021 – but at 4%, that was still well above the Fed’s 2% target. Just like the latest personal consumption expenditures index showed similarly slowing inflation also above the Fed ‘s comfort zone. June meeting minutes showed a united Fed agreed to hold rates steady, buy time and assess whether further hikes would be needed. The answer seems yes. And the most deeply inverted bond yield curve since the 1980s suggests investors bracing for another hike also expect Fed tightening raises recession risks.2/ FIGHTING FIRES    China is fighting a hi-tech trade war with Washington while grappling with a sputtering economy.    After months of tightening of restrictions by the U.S. and key allies on chip-related imports, Beijing hit back in recent days with curbs on chip-making metal exports, and a warning of more to come – just in time for Treasury Secretary Janet Yellen’s visit. Washington has been mulling curbing Chinese companies’ access to cloud-computing services.    Things aren’t looking bright on the economic front either. Monday’s inflation data should show more deflationary pressure at factories and retailers, while Thursday’s trade numbers are expected to see a continued decline in exports – all pointing to lacklustre demand.    Hopes for major Politburo policy support at month-end seem to have faded. Goldman Sachs (NYSE:GS) said that conversations with their local clients showed they now expected to see measures aimed only at easing economic headwinds, rather than generating strong growth.3/ PAUSE AND EFFECTSkips, pauses and pivots dominate monetary policy conversations as persistent inflation has seemingly consigned central-bank forward guidance to the dustbin of history. Increasingly, policymakers say decisions depend on future data, making it harder for traders to formulate a view on the outlook.The Reserve Bank of New Zealand (RBNZ) – one of the first major central banks to start tightening policy – has raised rates by 525 basis points since October 2021 – the most among the G10. In May, it signalled it had finished raising rates, but at its meeting on Wednesday longer-term clarity may remain out of reach with inflation running at 6.7% and the economy in recession.The Bank of Canada, meeting the same day, is in the data-dependent corner, leaving markets split down the middle on whether it will raise or pause. 4/BANK EARNINGSU.S. banking giants sailed through the Fed’s annual health check in late June, highlighting they have enough capital to weather a severe economic downturn. But now it’s time for earnings, with JPMorgan Chase (NYSE:JPM), Citigroup (NYSE:C) and Wells Fargo (NYSE:WFC) all scheduled to report second quarter earnings on July 14. The picture looks not so rosy with results predicted to be weighed down by sluggish dealmaking and trading revenue while a dearth of investment-banking activity has prompted banks to lay off thousands of employees.Meanwhile, the largest U.S. lenders are expected to keep tightening credit standards given the uncertain economic environment, particularly after bank failures earlier this year. Analysts focus on banks’ lending outlook and how much they set aside in rainy-day funds to cushion losses from souring loans. 5/ TROUBLE IN CREDIT LAND Debt-laden companies are running into trouble. Embattled French retailer Casino, with 3 billion euros ($3.3 billion) of debt maturing in the next two years, has until end-July to agree a restructuring plan. Britain’s Thames Water, with 14 billion pounds of borrowings, faces temporary state ownership if it can’t raise fresh capital. Sweden’s commercial landlord SBB is fighting for survival. In the U.S., junk-rated companies have to refinance almost $1.2 trillion of borrowings by 2026, according to S&P Global (NYSE:SPGI) Ratings. At the same time, the market for collateralised loan obligations – vehicles formed by specialist asset managers that buy about 60% of all junk-rated loans and package them up into bonds – has almost shuddered to a halt. Stock market valuations do not reflect any credit-related worries yet – but that may just be the eye of a storm. More

NEW YORK (Reuters) -Investors are on edge ahead of Friday’s U.S. jobs report after more evidence of economic resilience cemented expectations of higher rates for longer and sent yields to a 16-year high.Unexpected strength in the labor market, which showed private payrolls surged in June, sent the two-year U.S. Treasury yield, which typically moves in step with interest rate expectations, to 5.120% on Thursday, the highest since June 2007. Traders in U.S. interest rate futures markets bumped up the probability of another rate increase by the Federal Reserve in November.”It’s counterintuitive, but strong data increases the odds that we will have to go into a recession to break inflation,” said Jack McIntyre, a portfolio manager at Brandywine Global. The S&P 500 Index, fell 0.8% on Thursday, pulling back from a more than 1-year high touched earlier this week.”We are clearly in a phase where strong data is not good for equities,” said McIntyre.Attention now turns to the June jobs numbers on Friday, which could mark another big move for stocks. The S&P 500 has logged an average move of 1.2%, in either direction, on nonfarm payrolls report days, compared with an average move of 0.9% for all days over the past year.According to a Reuters survey of economists, nonfarm payrolls likely increased by 225,000 jobs last month after rising 339,000 in May. The unemployment rate is forecast slipping to 3.6% from 3.7% in May. MOVING MARKETS Economic data has been an outsized mover of markets in recent months as investors parse each new report for clues on the strength of the U.S. economy.Many investors are convinced that a hot report on Friday would force the Fed to resume interest rate hikes, jeopardizing a rally in risk assets that has helped lift the S&P 500 about 15% this year.Federal Reserve Bank of Dallas President Lorie Logan said on Thursday that there was a case for a rate rise at the June policy meeting, in comments that affirmed her view that more rate increases will be needed to cool off a still-strong economy. RECESSION WATCHSo far the U.S. economy has held up better than many investors had expected. Goldman Sachs (NYSE:GS), in early June, lowered its probability for a U.S. recession in the next 12 months to 25% from 35% and said the Federal Reserve will “most likely” hike interest rates by 25 basis points in July.But growth expectations could take a hit if the Fed powers on with its rate hikes.Meanwhile, a closely watched part of the U.S. Treasury yield curve has inverted to its deepest level since 1981, putting a spotlight on what many investors consider a time-honored recession signal. U.S. interest rate futures on Thursday signaled an increased probability of another rate increase by the Federal Reserve in November.The benchmark fed funds futures factored in a 44% chance of a hike in November late on Thursday, compared with about 36% the day before, according to CME’s FedWatch. For next month’s Fed policy meeting, the odds of a 25 basis-point hike were at 92.4%, compared with 90.5% late on Wednesday.If the jobs report comes in hot it would further stamp out any hopes of equities-supporting interest rate cuts. “I don’t think it causes a major, sustained correction in risk assets if we get a hot number tomorrow,” said Aaron Hurd, senior portfolio manager, currency, at State Street (NYSE:STT) Global Advisors.”But I do think the immediate reaction is yields higher, equities lower,” he said. More