Macro: Fed/Warsh transition, yields & inflation risk
Key Questions
What changes is the Fed under Warsh making to its policy approach?
Warsh's Fed is shifting from forward guidance to greater data dependency, which is expected to increase market volatility. This new stance is confirmed in recent Sintra comments supporting the disinflation narrative.
How did the June jobs report impact rate hike expectations?
The report showed NFP growth of only 57k versus 113k expected and unemployment at 4.2%, causing rate hike odds for July to fall sharply. Markets now price a 30% chance of a hike, up from 6% a month ago but still leaning toward a hold.
What effect did recent data have on the 10-year Treasury yield?
The 10-year yield dropped to 4.39% after the ADP employment miss and dovish Warsh remarks. PCE core inflation also came in softer at 0.4% versus 0.5% expected.
What recession risks are highlighted in the current environment?
Warnings point to wealth concentration, extreme AI valuations, and sticky inflation as potential triggers for a downturn. Grantham has flagged the possibility of a 70% drawdown given the Fed's limited room to cut rates.
Why are the upcoming FOMC minutes a key catalyst?
These will be the first minutes under Warsh and will clarify the shift to data-dependent decisions. They coincide with early earnings reports from companies like Delta and PepsiCo.
How are sectors responding to the weak jobs data and lower oil prices?
Financials and healthcare have led while oil at a 4.25-month low is providing relief to airlines. Small caps (IWM) have also outperformed amid the rotation.
What is Cathie Wood's assessment of the June employment report?
Wood described the report as 'weird' and 'very distorted,' attributing part of the miss to a World Cup-related anomaly. Wall Street analysts have echoed concerns about data reliability.
What geopolitical factor could still influence inflation?
Risk from tensions involving Iran and the Strait of Hormuz remains a background concern for oil prices and broader inflation dynamics.
Warsh's Fed is shifting to less forward guidance and more data dependency, increasing volatility. FOMC minutes and early earnings (Delta, PepsiCo) are key catalysts this week. ADP miss (98k vs 118k) and Warsh dovish comments lowered rate hike odds. PCE core 0.4% vs 0.5% expected; 10-year yield dropped to 4.39%. Initial jobless claims 215k but ongoing claims at 3-month high. June BLS jobs report: NFP +57k vs +113k expected, unemployment 4.2%, rate hike odds fell sharply. Warsh dovish on AI job losses and inflation. A new recession risk warning emerges: wealth concentration, extreme AI valuations, and sticky inflation could trigger a downturn; Grantham warns of 70% drawdown. Fed has limited room to cut rates. NFP scenarios played out: MAGS recovery above 66, QQQ rug pull, financials/healthcare leading. Oil at 4.25-month low helps airlines. Cathie Wood calls the jobs report 'weird' and 'very distorted', citing World Cup anomaly; Wall Street also questions the miss, adding uncertainty. The June BLS report also showed labor force participation dropping to 62.5% and wage growth slowing to 3.9% YoY. Trump and allies push Warsh as dovish. Warsh plans to harness better economic data, acknowledging government data is broken, which could lead to more data-dependent rate decisions. Rate hike odds at 30% for July are up from 6% a month ago, but markets still lean hold. New: Warsh's communication shift (less forward guidance) means markets will react more to hard data prints. Warsh's Sintra comments confirm disinflation narrative, supporting rotation into small caps (IWM +21.6% vs SPY +9%). First Warsh FOMC minutes this week. Live update confirms Fed minutes as key catalyst. A Wall Street Brunch preview reinforces the importance of this week's FOMC minutes and earnings. Geopolitical risk from Iran/Strait of Hormuz remains a background factor for oil and inflation. New: ISM services data positive, adding to macro picture. Overnight futures mixed, Dow record, retail sentiment bullish. Goldman cautious on semis, AMP warns of Trump whiplash.