US EARLY MORNING: US index futures are a little higher after Monday's encouraging news on the inflation front

US PRE-MARKETS: US index futures are trading a little above neutral following Monday’s gains, which were underpinned by apparent progress on the inflation front, where the Manheim Used Car survey and the NY Fed’s Survey of Consumer Expectations both alluding to cooling near-term price pressures. These data have eased fears going into Wednesday’s CPI release. Treasury yields are lower across the curve, with the long-end outperforming. Fed pricing remains little changed, however, with money markets still assessing that the central bank will lift rates 25bps in July, to between 5.25-5.50%, where rates are expected to peak. The Dollar Index is a little lower, and crude futures are also gaining.

FED, JOBS, GROWTH: Goldman Sachs says that the gap between interest rates and financial conditions in the US can be partly explained by optimism about economic growth. However, current financial conditions also reflect expectations for policy relief, which puts pressure on the Fed to maintain a more cautious approach. GS notes that the central bank has historically been hesitant to ease monetary policy when the job market is strong, but the bank says that upside for rates looks limited – from here, both right and left tail risks could be more capped making the risk/reward on short duration positions less attractive. GS argues that the relaxation of growth expectations in risky assets has increased the risk of disappointment, making short-term calls on gold an attractive option for hedging portfolios. The US economy's strength, along with the Fed's cautious stance and concerns about global growth, has supported a stronger US Dollar, especially against emerging market currencies. The Euro, meanwhile, has remained resilient despite weak economic data, but there may be opportunities for the Euro to weaken if domestic and Chinese growth remain subdued, GS writes.

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11 Jul 2023 - 09:30- Fixed IncomeData- Source: Newsquawk

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