Credits traded firm last week retaining the momentum seen after the Non-Farm Payrolls (NFP) rally. After months of mixed to weak economic data prints, the labor market is now seeing some weakness and inflation is starting to cool off as evidenced by the release of the June Consumers’ Price Index (CPI) numbers printing lower than expected. Benchmark yields fell by 6-11 basis points (bps) across the curve post-CPI release. However, the move in risk assets was subdued in comparison, with credit spreads ending the week only 2-4 bps tighter.
- US CPI beat estimates at 3.0% vs. 3.1% expected (July 11). It also came out lower compared to the previous month’s inflation data of 3.3%.
- US unemployment claims increased higher to 243k compared 229k prior (July 18).
- With the jobs update signaling softer labor market conditions along with softer inflation print, markets are pricing in two to three cuts for 2024, with a 95.5% chance of the first rate cut happening in September this year.