Bonds & Stocks
As news reports of Powell’s potential firing circulated, markets responded with big moves within about 30 minutes: The Treasury yield curve steepened significantly. The two-year yield fell 10 basis points on expectations that the Fed will be more likely to cut this year – and the 30- year yield rose 10 bps. The S&P 500 index fell almost 1%, and the Bloomberg dollar index fell 1.2%. Ten-year Treasury inflation breakevens rose 5 bps. The VIX volatility gauge rose from 17 to 19.5.
Economy
US retail sales saw a broad advance, potentially tempering some concerns about a retrenchment in consumer spending. Separate data showed applications for US unemployment benefits declined for a fifth straight week to the lowest level since mid-April, showing a solid job market.
World
France and Italy will not take part in a new NATO-led initiative to finance the delivery of U.S. weapons to Ukraine. According to French officials, France declined to join the plan because of President Macron's push for European nations to strengthen their own defense industries by purchasing domestically produced arms. Italy has taken a similar position. Italian Defense Ministry sources stressed that the decision should not be seen as a lack of support for Ukraine, but rather as a call to explore alternative ways to contribute to the broader effort.