GOOD MORNING!     Wednesday’s releases of weekly jobless claims and durable/capital goods orders (AI spending?) were better than expected but only saw a mini-reaction by the Treasury market as it awaited the 7-year T-note auction and the Beige Book.  The auction was soft and the Beige Book was dull as the color suggests.  It summarized economic activity as little changed since the previous report and that overall consumer spending declined further.  Manufacturing activity increased somewhat, according to most districts, though tariffs and tariff uncertainty remained a headwind.  Employment declined slightly over the current period with around half of the Districts noting weaker labor demand.  Despite an uptick in layoff announcements, more Districts reported contacts limiting headcounts using hiring freezes, replacement-only hiring, and attrition than through layoffs.  A few firms noted that artificial intelligence replaced entry-level positions or made existing workers productive enough to curb new hiring.  On inflation, the Beige Book said prices rose moderately during the reporting period.  Input cost pressures were widespread in manufacturing and retail, largely reflecting tariff-induced increases.  Looking ahead, contacts largely anticipate cost pressures to persist but plans to raise prices in the near term were mixed.  In sum, the Beige Book was no help to the Federal Open Market Committee (FOMC) in making a decision whether to cut rates or not at the meeting in two weeks.  But the markets have already decided that the Fed will elect to cut rates and were assigning 80% odds that they would, in light of comments from Governors Miran and Waller and NY President Williams.  They know the Fed views the risks to the labor market as outweighing the risks to inflation and are also betting that the Fed wouldn’t risk not cutting and cause a major stock market melt-down that would tighten financial conditions.  There was a lack of response by the Treasury market to the Beige Book.  Stocks, however, kept pushing upward.  For the first 3 days of the week, the Dow is up 2.5%, the S&P up 3.1% and the NASDAQ is up 4.2%.

    The pre-opening market is showing little change, but they is largely due to a disruption of futures and option trading at the Chicago Mercantile Exchange (CME) due to a data center malfunction.  No data, no Treasury auctions or Fed speakers in what a dull day except for month-end positioning, re-balancing.