Markets love certainty, how the Biden-Trump show is impacting stocks and bonds, and 4 things to know today.

There’s conventional wisdom on Wall Street that markets prefer gridlock in Washington, D.C. — one party controlling the White House and the other party controlling Congress. But what markets prefer even more is certainty, a high degree of predictability about what the government will do over the next few years. Traders tend to like gridlock because it usually means little change is likely to occur.

Since President Joe Biden’s shaky performance in the debates last week and former President Donald Trump’s favorable Supreme Court ruling granting him partial immunity, stock prices have risen and so have bond yields. The rise in stock prices may be due in part to the growing certainty of a Trump victory. The pessimistic movement in bond yields reflects the belief that Trump’s policies, such as trade tariffs, immigration cuts and tax cuts, will lead to inflation and higher interest rates.

To take another example, the UK has seen a landslide victory for the centre-left and radical reforms are underway, leading to rising stock prices. But the situation is different in deeply divided France, where Marine Le Pen’s far-right party looks set to become the largest force in parliament but may not win a majority. Uncertainty is high and stock prices have fallen since May.

The Trump trade could reverse if Biden withdraws and the Democrats nominate a new candidate, in which case the key driver for markets will be the looming uncertainty, not politics itself.

—Brian Swint

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Fed members wanted more evidence that inflation was falling: minutes

Federal Reserve officials noted that progress in containing inflation had been slower than expected in December and did not think it would be appropriate to cut interest rates until they had more confidence that inflation was moving sustainably toward their 2 percent target, according to minutes of their June meeting.

• Instead, participants adopted a wait-and-see attitude at the June 11-12 monetary policy meeting. Range of possible outcomes We will take into account the economy and inflation and their effects on interest rates and ultimately keep the federal funds rate in the same range set a year ago.
• Several officials said they were watching for signs of a sharp decline in economic activity or rising unemployment that could lead to earlier easing. Others cited “a number of reasons why inflation could rise above 2% or even rise again” as reasons why the Fed is “very concerned.” Geopolitical developmentstrade frictions, housing prices, etc.
• This week, payroll company ADP reported that private employers added 150,000 jobs in June. Below May’s revised figure The data was weaker than expected. Leisure and hospitality employment surged, while manufacturing employment fell.
• The employment slowdown Strengthening the argument for lowering interest ratesInitial jobless claims this week beat Wall Street expectations and the four-week moving average rose to a nine-month high, another sign the Fed is signaling a cooling labor market.

What’s next: The Fed’s next policy meeting is on July 30 and 31. Interest rate futures prices suggest there is a less than 10% chance that the committee will cut the federal funds rate by 0.25%. Traders see a 66% chance of a rate cut at the Sept. 17-18 meeting.

—Janet H. Cho and Nicholas Jasinski