Treasury yields remained stable after a decline on Monday, which was influenced by a significant wave of high-grade corporate bond sales exceeding $21 billion. The strength in US equities has attracted global investors, who are expected to continue investing heavily in the market. A Bank of America survey of 206 participants managing $640 billion in assets revealed a bullish sentiment not seen since November 2021. The survey also highlighted that long bets on the "Magnificent Seven" technology giants now constitute 69% of trades, marking one of the most crowded trades in history.
The dollar is approaching a new 2024 high, buoyed by elevated US Treasury yields and investors seeking a safe haven amid political uncertainties in Europe. The Bloomberg Dollar Spot Index is nearing levels last seen in November, with the premium for hedging against US dollar gains rising to its highest point in over a year.
As the US approaches a mid-week holiday, traders are focusing on upcoming retail-sales data and a series of speeches from Federal Reserve officials. At least seven Fed officials are scheduled to speak, and the market will closely watch for any shifts in their outlooks in response to recent softer economic data. On Monday, Federal Reserve Bank of Philadelphia President Patrick Harker indicated his support for a single interest-rate cut this year based on his current forecast.
Goldman Sachs economists suggest that the US labor market has reached an "inflection point," where any further weakening in labor demand will directly impact jobs rather than just job openings. Analysts, including Jan Hatzius, note that economic activity has slowed significantly, which is the key driver of labor demand. Despite the Federal Reserve's "surprisingly hawkish" stance last week, Goldman Sachs maintains its forecast of two rate cuts in September and December, reinforcing their outlook amidst the evolving economic landscape.