Morning Notes — Busy Week Ahead

This is the busiest week on the summer catalyst calendar with peak Q2 earnings volume and no shortage of macro data/events. Wednesday’s Fed meeting in focus after June’s meeting resulted in hawkish takeaways and lower real yields (nominal yields – inflation) that pushed growth/Tech outperformance.

Curve: Real yields can gently rise if the Fed is able to partially talk down inflation expectations at Wednesday’s meeting.  Lower inflation expectations could also gently steepen the yield curve as it reduces the likelihood for Fed tightening.  The 5/30 year yield curve remains just above resistance at ~120bps.  Our preference to add exposure in cyclical/value equity sectors has been on hold since the 5/30 curve crossed below 120bps four weeks ago.  Sustained closing levels above 120bps are required before we consider returning to the theme. Given recent Fed messaging, a significant steepening of the yield curve depends on improved labor market conditions, which has our focus on July Non-farm payrolls due next Friday 8/6.