Financial markets were worried about core PCE inflation data in the US. Not only do traders focus on inflation, but they know that the PCE is the Fed’s “favorite” inflation gauge.
Core PCE fell from 5.2% to 4.9% in April while the stock stood at 6.3% from 6.6%. Granted, that’s still higher than the Fed wants to see, but with this week’s economic news mostly pointing to slowing growth, confidence, and even a few cracks in jobs (see the list of payroll cuts underway at the tech giants), the hope is that it also has a corresponding drop in inflation (and inflation expectations).
Of note today in today’s economic data is that inventories rose 2.1%. This is the 3rd month in a row with inventory gains of more than 2%. With the US economy leaning more towards services and things like vacations, this could be the antidote to supply chain issues for goods. If inventory continues to build up, it could lead to lower prices for some goods.
Also today, the Michigan Consumer Confidence Index came in at 58.4 vs. an estimate of 59.1. The Sentiment Index is the lowest since 2011. The Expectations Index is also near a year low, which was also the lowest since 2011. So while the consumer may be pleased with the gains and things like equity housing, concerns about housing market levels and declining equity prices are impacting the margin. Consumers aren’t likely to cancel vacations or skip Elton John or Michael Buble concerts, but they may change their other spending habits, especially if oil prices stay high. This weekend, it will be crowded to dine and watch a movie as Top Gun is expected to open to large crowds in theaters. Oh….the good old days.
That said, the Fed is still walking a tightrope as it attempts to gently bring the economy down.
Still to come:
- US jobs will be released next Friday. Traders are hoping for a softer number. The stock market is hoping for a weaker number (we are in an environment where slower economic data is good for stocks, at least for now). Expectations are for a 325K gain which is still quite robust with the current unemployment rate at 3.5%
- QT. The Fed has not launched its bond selling program. However, the past 3 weeks have seen the 10-year yield decline from 3.203% to 2.74% currently. At least if the Fed sells Treasuries bought in 2020 and 2021 when 10-year yields were between 0.6% and 1.8%, it won’t sell them at the high yield of 3 weeks ago. at 3.20%, but at a lower level of 2.7%. . Will Treasuries and mortgage-backed sales push yields higher? PS, at least part of the decline in the balance sheet will be the maturation of short-term issues for which there seems to be a decent amount of demand.
- Russia/Ukraine war. Oil prices rising $150 is not out of the question as oil supplies remain tight and the risk of further escalation increases, especially if it starts to impact things like the food people are on. count to live.
- Politics China and China Covid. The bad news about China’s Covid policy is that they have shut down their economies, which has the potential to exacerbate supply chain issues and inflation. The good news is that the demand for goods seems to be weaker. Apple spoke this week about the drop in iPhone sales. It could be a good thing. If the demand was strong, the supply might not be there and could push prices even higher.
These things (and many more) will have to be settled in the markets. However, this week the focus has been on lower inflation, lower yields, lower equities and lower dollar as well.
In the forex market today, the NZD was the strongest and the USD was the weakest.
The NZD gain may have been a delayed reaction to the RBNZ’s 50 basis point rise on Wednesday. At the meeting: In addition to raising rates by 50 basis points, they also raised expectations for rates going forward. As a reminder,
- In September 2022, the RBNZ expects the official exchange rate to be 2.68% (previously 1.89%).
- By June 2023, the RBNZ expects the official exchange rate to be 3.88% (previously 2.84%).
- In September 2023, the RBNZ expects the official exchange rate to be 3.95% (previously 3.1%).
That 3.95% should be the peak, according to the RBNZ. The spike was previously seen at 3.35% by the RBNZ.
After initially rising on Wednesday, NZDUSD declined but found supportive buyers against the rising 100-hour MA (see post here). The trend continued on Thursday. Today however, the NZDUSD is up 0.91%. It was the biggest movement of the day. US dollar selling also helped as the string of “weaker inflation” type numbers and a general flight out of greenback safety pushed the greenback lower.
A look at other markets showed:
- Spot gold rose $3.16 or 0.17% to $1,853.49
- silver spot rose $0.11 or 0.5% to $22.10
- WTI crude remains high at $115.19 up $1.10 or 0.96%
- Bitcoin price is trading below the $29,000 level to $28,813.
- Natural gas, which traded this week at a high of $9.43 at the highest level since August 2008, fell over the weekend and closed at $8.70. It’s still 6.73% higher this week, but like I said, it could have been worse.
In the US stock market, major indexes broke their multi-week streak of declines in a big way by rising more than 6% this week alone. Below are the gains for the main indices for the week:
- The Dow Industrial Average rose 6.24%
- The S&P index rose 6.58%
- The NASDAQ index rose 6.84%
- Russell 2000 rose 6.46%
In the US debt market today, yields are little changed but are down sharply from the cycle highs reached in May:
- 2 years 2.484%, +0.2 basis points. The high yield of the cycle reached 2.857%. Yield fell -37 basis points.
- 5 years 2.724%, +1.2 basis points. The high yield of the cycle reached 3.107%. Yield fell -38 basis points
- 10 years 2.743%, -0.8 basis points. The high yield of the cycle reached 3.203%. Yield fell -46 basis points.
- 30 years 2.972%, -1.2 basis points. The high yield of the cycle reached 3.309%. Yield fell -34 basis points
For the trading week:
- 2-year decline -10.3 basis points
- 5-year decline -8.0 basis points
- Decline over 10 years of -4.2 basis points
- 30-year decline -2.0 basis points
Overall, if investor sentiment is measured by things like stock markets and interest rates, this week has been a good week, a great week. Thank you for your support and patience with me this week as Adam had to deal with a power outage for 3 consecutive days following severe storms last Sunday (he was dealing with whatever comes with it).
The happy days were therefore back after 7/8 weeks of declining stocks and rising yields.
However, the mood of humanity continues to be gloomy due to the continued Russian aggression in Ukraine, where old people, young people, men and women are senselessly dying, and due to the another senseless murder of nineteen 10-year-old children, and their two teachers in Uvalde, Texas (and the death of 14 in Buffalo, New York.
I will never understand the thought process, no matter what was written on a piece of paper nearly 250 years ago.
I’ve always said – and believed – that when my time came, I didn’t want to be remembered by my party affiliation, by the country where I was born, or even by the religion I practiced. I am not affiliated with any particular ideology, I happen to be born in America and my parents were Catholic, which is how I was raised. I love my home and my country. I love my faith, but I love something bigger.
What I would like to be remembered for is a person who appreciated that life is a gift from God (if you have a different God than mine, that’s fine, I don’t care). That God gave me this life full of choices. These choices – much like trades – are either this way – the right way, or this way – the wrong way. The right way is to love each other. The wrong way is not to love yourself.
None of us are perfect and I’m in that bucket. We all have losing trades.
There are times when I judge. There are times when I choose not to love, to hurt someone.
However, if I’m really grateful for this gift called life, I can go back on the trend. I can attack the good tendencies of life by emphasizing love.
I will be looking to enjoy the weekend, and I also wish you all a weekend filled with love and peace. However, I will also remember and pray for the children, men and women, young and old who lost their gift of life early for senseless reasons, and for their families who are left with a void that cannot be filled. only by faith.
love each other…