What is really behind the slow down in volume and market participation?
1. Hushed Price Action, Few Catalysts
Both the overnight Globex trade and the post-lunch U.S. cash session continue to show exceptionally light volume and realised vol. Neither the latest GDP print (−0.5 % q/q, chained) nor May’s personal-income / spending figures managed to jolt the market, underscoring that headline eco-data just isn’t in the
driving seat at the moment.
2. Disinflation Rolls On—But Tariff Clouds Gather
- CPI glide-path: May CPI eased to 2.4 % Y/Y.
Street estimates for the 15 July release (June data) see another small leg lower, reinforcing the mellow disinflation trend. - Fresh inflation risk: The Fed’s June Monetary Policy Report flags prospective “MAGA” tariffs as a possible upside shock, even as core prices cool.
2a. PCE: In-Line Print, Collective Shrug
Core PCE for May rose 0.2 % m/m and 2.7 % Y/Y—bang on consensus—turning the release into a nonevent for risk assets.
With the surprise index flat, Fed-funds pricing barely twitched and S&P e-mini volume stayed lodged in the bottom decile of the year. The market now cares more about the trajectory—especially once any tariff effects start percolating later in Q3—than the one-off print.
The income backdrop is still constructive: real average hourly earnings grew 1.4 % Y/Y and real weekly earnings 1.5 %, keeping purchasing power in positive territory.
Tomorrow’s BEA release on real wage consumption should confirm that story, which is why traders largely ignored today’s PCE print. Even so, a record stash of cash in money-market vehicles ($7.02 trn AUM) and tariff uncertainty leave the system in a strong-but-cautious stance: liquidity is plentiful, conviction is not.
3. Funding Friction: 13-Week Bills Say “Hold Fire”
Three-month T-bill yields hover around ≈ 4.30 %, well above the 4.00 – 4.05 % band that typically foreshadows a 25 bp Fed cut. Translation: the front end still isn’t pricing a Powell pivot.
4. Fiscal Reality Check
Even aggressive tariff assumptions can’t fill the hole left by softer personal-income-tax receipts. Any boost to nominal revenue would be eroded by the inflation those same tariffs generate, deepening the real deficit. The fiscal train is still doing 300 km/h—with no brakes in sight.
5. Liquidity & Behavioural Shifts
- Money-market funds: Assets grew by $7.6 bn in the eight days to 25 June, nudging the total to $7.02 trn—roughly 1 % m/m and 2.4 % Y/Y.
- Personal saving: May’s rate slipped to 4.5 %, yet the absolute stock—$1.01 trn—remains a potential spending war-chest once macro fog clears.
6. Trading Implications
- Bias still tilts long, but conviction is wafer-thin. Low liquidity implies outsized gap risk when a real catalyst finally lands.
- Path-dependence rules: A soft June CPI could ignite a relief bid, while a firm tariff timeline would likely snuff it out.
- Front-end watch: A decisive 13-week break toward 4 % would be the cleanest signal the Fed is opening the door to rate cuts.
Bottom Line
Markets remain caught between ongoing disinflation and looming tariff-driven inflation, all against the backdrop of a stubborn fiscal gap. Until one narrative wins out, expect a continued alternation between quiet-tape drift and fast-tape bursts rather than a durable trend.