A few excerpts from a Merrill Lynch research note:
The June employment report was strong with job growth of 224K … leaving us comfortable with our view that the Fed will not cut in July and wait until September to deliver the first rate reduction. … last week’s data were extremely important in dictating Fed action. So what did we learn? No fireworks from the G20 meeting, the ISM manufacturing index held in expansion territory at 51.7 and job creation was robust. The combination does not point to an immediate cut. At a minimum, this takes a 50bp cut off the table but should also prompt the Fed to argue for waiting for more data.
This puts the spotlight on Fed Chair Powell at the Semi-Annual Monetary Policy testimony on Wednesday. … We would argue that since the June meeting, the evidence suggests more positive news … Indeed, even on the inflation front, the data have been better with an upward revision to 1Q core PCE inflation to 1.2% q/q saar from 1.0%, and the University of Michigan long-run inflation expectations revised up to 2.3% from 2.2%. … Powell … can make the case that the data have been better than expected [and] note that the Fed remains vigilant and stands ready to act to prevent below-trend growth.