Better than expected economic data supports returns and hints at further US interest rate hikes

NEW YORK Better than expected economic data weighed on fixed income. The number of initial applications for unemployment benefits fell more sharply than expected in the past week. In addition, the leading indicator for the Philadelphia region brightened more in May than forecast. The data tends to point to further interest rate hikes by the US Federal Reserve. This supports returns.

Speculation that the US Federal Reserve will have to raise interest rates again as inflation remains high also weighed on performance. Traders increased bets on a rate hike in June to about 40 percent after Dallas Federal Reserve Chair Lorie Logan said the case for a pause in rate hikes next month was ambiguous.

Otherwise, the dispute over raising the debt ceiling continues to dominate market activity. Most recently, statements by President Joe Biden and House Speaker Kevin McCarthy fueled hope for a solution. This supported the stock exchanges and reduced demand for government securities. Without an agreement between Republicans and Democrats, the consequences for the US and the global economy are serious.