US Data – Leading the way up
The US economy continues to defy gravity and once again surprised last week with a QoQ GDP data of 2%, surpassing the expected 1.4% survey. This performance was supported by orders for durable goods, strong home sales, high consumer confidence, increased personal consumption, and a decrease in jobless claims. US 2Y yields took the lead in the rates market this week, and the front-end now prices 35bps of additional tightening to a terminal rate of 5.45%. Powell reaffirmed in Sintra that the Federal Reserve’s base case includes two more rate hikes, according to the latest dot-plot. However, we believe it is increasingly advantageous to extend duration into the second half of the year.
This week, our focus will be on labour market data, including JOLTS job openings on Thursday and NFP on Friday.

Eurozone – Inflation stays sticky
Eurozone inflation declined from 6.1% to 5.5% last week, while core inflation accelerated slightly from 5.3% to 5.4% YoY, falling short of the anticipated 5.5% level and the associated concerns. Lagarde, during the ECB’s conference in Sintra, had presented a somewhat hawkish outlook, hinting at persistent inflation and more rate hikes. However, ECB sources on Friday stated that a September rate hike is not yet set in stone, despite market expectations of a 17bps increase. The growth outlook is increasingly influential in the ongoing debate and provides room for duration to rally over the summer, as economic sentiment continued to weaken further last week across services, industry, construction and retail.

Algebris Investments’ Global Credit Team