Embedded Narrative - Soft Landing | Benign Inflation | US2s H&S in play | US2s10s bull steepening

One of my favorite poem is by Kahlil Gibran and thought I'd share a couple of lines with you all... 

Do not live half a life and do not die a half death
If you accept, then express it bluntly, Do not mask it
If you refuse then be clear about it
for an ambiguous refusal is but a weak acceptance
Do not accept half a solution, Do not believe half truths, 
Do not dream half a dream, Do not fantasize about half hopes

To reach and not arrive, Work and not work

The half is a mere moment of inability, but you are able for you are not half a being

You are a whole that exists to live a life not half a life”

On that note, quick weekly roundup for the US markets below:

The Fed Fund Futures are pricing in 88% probability of a rate cut by September Policy. The Atlanta FED GDPNow Estimates for Q3 growth readings are running at 2.8%. The Cleveland Fed estimates for Core CPI and Core PCE are running at 0.27% and 0.22% respectively mom. 

In the last blog piece, I wrote about what Trump's policy bearings could mean for the markets as odds of a Trump win surged to 61% but One day in Politics is like a year. Joe Biden’s sudden exit and the ensuing rally around Vice President Kamala Harris have yet again shifted the dynamics, with a recent poll showing Trump ahead of Harris by only 1.70 points.

Yields on US2s held the neckline of the H&S and we drifted lower with yields falling to 4.34% and closed the week at 4.389%. The really interesting move came from US2s10s which bull steepened to a high of -14.40 bps and closed the week at -19.50 bps.

Sales of New and Existing Homes continued to disappoint. Last week's data on Permits, Starts and Completion showed monthly momentum picking up in construction activity driven by multi family dwellings, the sales data however shows poor sales. 

In July, the US economy demonstrated strong growth, with the Flash PMI Composite Output Index rising to 55.0, its highest in 27 months. The Service Sector outperformed, with Services Business Activity Index climbing to 56.0, a 28-month high, reflecting robust expansion. Conversely, the Manufacturing PMI fell to 49.5, signaling a decline in manufacturing activity for the first time in six months. Employment growth slowed, and business confidence dropped amid political uncertainty and high living costs. Despite a moderation in the overall inflation rate for goods and services, input costs increased, potentially impacting future pricing and margins. Firms reported higher prices for a wide variety of raw materials, with energy and logistics prices also on the rise, the latter caused in part by increased freight and shipping rates. However, higher wage pressures also remained a dominant factor behind price hikes, especially in the service sector.

The Jobless Claims did not offer much by way of a catalyst. 

Q2 2024 U.S. real GDP grew at an annual rate of 2.8%, up from 1.4% in the first quarter, driven by increased consumer spending and private inventory investment. Current-dollar GDP rose to $28.63 trillion, and the PCE price index increased by 2.6%. Personal income grew by $237.6 billion, with a slight decrease in the personal saving rate to 3.5%.

The U.S Core PCE Prices rose at a very benign 0.18% mom with the 3m annualized rate observed at 2.30%, the lowest reading this year while the 6m change was highest in a year. Inflation readings have been steadily decelerating from 5.20% seen in June 2022 to 4.30% in June 2023 to the current 2.6%. 

Durable Goods orders were 6.60% lower over the month driven by a large drop in non defense aircraft and parts orders. The core Durable Goods Orders however rose 0.50% mom which suggests decent spending. 

The U.S Economic data confirms the soft landing narrative with declining prints on inflation and base case of a September rate cut. 

Coming on to the current week, we have the employment numbers - ADP, JOLTS, NFP, the all important FOMC and the ISM PMI numbers.