Rising Trade War Rhetoric Kicks Off Holiday Week

Jul 02, 2018
Fire Works

Holiday Week Still Packs Plenty of Punch

While the week ahead will be split with the July 4th holiday on Wednesday it still packs plenty of first-tier releases topped with the June Employment Rate on Friday. That report is expected to show another solid month of job gains but with no change in the unemployment rate (3.8%) and a slight increase in average hourly earnings (2.8% YoY).  We’ll also get a pair of ISM surveys for June (Manufacturing and Services) today and Thursday, respectively.  The trio of reports will give us an early look at June’s activity. After the holiday, the FOMC Meeting Minutes from June are likely to garner attention in assessing the degree of conviction over a fourth rate hike, and any concerns over inverted curves and trade war escalation. The week begins, however, with a decided risk-off tone.



Short-Term Rates

Short-term Rates

Economic Calendar

Economic Calendar


Top Events of the Week Top 5 Events for the Week

JULY 2 – 6,  2018

1.  June Employment Report — Friday
2.  ISM Surveys—Monday/Thursday
3.  FOMC June Meeting Minutes —Thursday
4.  May Trade Balance — Friday 
5.  May Factory Orders— Tuesday



1.  June Employment Report—Friday

The June jobs release is expected to be another on-trend report with monthly job growth of 195,000 versus 223,000 in May with the unemployment rate remaining at 3.8% for a second straight month. The monthly average gain in jobs over the last year has been 197,000 so the June print is expected to be right on that average.  Once again, average hourly earnings will be the key metric and it’s expected to increase 0.3% MoM matching the May increase.  Year-over-year average hourly earnings are expected to tick up from 2.7% to 2.8%, the highest since January.  The average over the past year has been 2.6%YoY, so an above-average print is expected but one that will delay for yet another month the hoped for material wage acceleration that workers and the Fed are looking for. 


2.  June ISM Surveys—Monday/Friday

The ISM Manufacturing Survey is due later this morning and is expected to print 58.5 versus 58.7 in May.  Anything above 50 represents an expanding sector so the survey is expected to show continued strength in the manufacturing sector.  The average over the past year has been 58.7 so the June result should show a slight decline versus May and just under the yearly average.  The non-manufacturing (services) survey is due Friday and the forecast is for it to move slightly lower to 58.3 versus 58.6 the prior month. The average over the past year has been 57.7 so a solid beat on the twelve-month average and well above 50 indicating an expanding sector which represents nearly 90% of the economy. 


ISM Manufacturing Index


3.  FOMC June Meeting Minutes —Thursday

The June FOMC meeting had the expected 25bps rate hike but it also included a revised dot plot that signaled a fourth rate hike in 2018 versus prior meetings that had penciled in three hikes. The minutes will be reviewed for the discussions over that expected fourth hike and also examined for any concerns over a possible inverted yield curve and trade tariff concerns.  Given the continued flattening of the 2yr-10yr yield curve last week to just 31bps the curve discussion will be of great interest. At that spread, a 25bps rate hike in September could all but fully flatten the curve. And with its nearly 100% correlation for calling a recession, an inverted curve is something most Fed officials don’t want to force.


4.  May Goods Trade Balance—Friday

With trade war rhetoric all the rage right now the monthly look at trade deficits has become equal parts political and economic.  The goods trade deficit was -$46.4 billion in May 2017 and is expected to be –$43.6 billion in May 2018. That expected narrowing of the deficit is likely due in part to the 3% drop in the dollar during that time. One would expect that dollar decline would have boosted exports via cheaper prices and narrowed the trade deficit, all other things being equal. The deficit began the quarter at  -$47.2 billion, so the expected narrowing to -$43.6 billion indicates the trade sector will be additive to second quarter GDP.


5.  May Factory Orders —Tuesday 

The monthly Factory Orders Report isn’t a first-tier release by any stretch but given all the trade tariff talk and anecdotal reports of slowing activity in some goods sectors stemming from  tariff uncertainty this report will take on additional significance. For May, orders are expected to be flat and that comes after a decrease of -0.8% in April.  Orders ex the volatile transportation sector are expected to be up 0.4% matching the April increase. With the steel and aluminum tariffs hitting many producers using those inputs this report will be closely watched for the balance of the year. 




Technicals Investment Yield Ranges Over Last Year


US Treasuries

FHLB Agency Bullets

Mortgage Backed Securities 


US Corporate - Financials

US Agency Swap Rates

 Source: Bloomberg





Tom Fitzgerald Signature

Thomas R. Fitzgerald

Director, Strategy & Research




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