U.S. Highlights
- Economic news was relatively light in a holiday-shortened week. The move down in Treasury yields garnered headlines, as bond markets ratchet down inflation expectations.
- The FOMC Minutes were released this week and confirmed increased confidence among members that the economy is on the road to recovery.
- The Job Openings and Labor Turnover Survey also made news, showing demand for workers remains strong. Job openings were at an historic high in May. Challenges clearly remain in matching workers with opportunities. Hiring did not follow job openings up and the ratio of hires to openings fell to an historic low in the month.
Canadian Highlights
- Data from metropolitan real estate boards provided an early indication that Canada’s home sales likely continued to come back down to earth in June, as home sales edged lower in Toronto, Vancouver and Calgary.
- Employment bounced back strongly in June, with the economy adding 231k new jobs, and leaving the level of employment just 340k below its pre-pandemic level. Details were on the soft-side, with all gains and then some in part-time jobs.
- The Bank of Canada Business Outlook Survey and Survey of Consumer Expectations were positive, showing that businesses and consumers were feeling optimistic ahead of reopening.
U.S. – Bond Market Inflation Fears Ease
Economic news was relatively light in a holiday-shortened week. The move down in Treasury yields garnered headlines. U.S. yields have dropped notably and are now about 40 basis points below their March highs.
Nominal Treasury yields had surged earlier this year in the wake of the Democrats winning control of the Senate, as markets priced in more expansive fiscal policy and higher inflation. As is often the case with market swings, these expectations were likely a little over-done, and expectations for both inflation over the long-term, and fiscal stimulus appear to be recalibrating.
These moves seem a bit in contrast with the minutes from the mid-June Fed meeting, which confirm increased confidence among FOMC members that the economy is on the road to recovery. The minutes provided more color on why the “dots” – Fed members’ expectations for rate hikes – shifted earlier at that meeting. We expect the Fed to move from talking about talking about tapering to action in the coming meetings.
However, the recent decline in bond yields is less about shifts in market rate hike expectations. Rather, it is largely due to declining inflation expectations, as shown in a narrowing spread between nominal and inflation-indexed bond yields (Chart 1).
One economic release that has gained prominence recently – the Job Openings and Labor Turnover Survey – continued to paint a picture of a high degree of labor disruption and churn due to the pandemic. The level of job openings remained historically high in May, confirming demand for…
Read More: The Weekly Bottom Line: Bond Market Inflation Fears Ease