CEILING THE DEAL
Last week, US economic data suggested slowing activity. However, this took a back seat to concerns around the US debt ceiling. As negotiations in Washington stalled, markets became concerned that a deal would not be reached, leading the one-month US Treasury yield to hover around its all-time high.
This week, the focus set to remain on negotiations on the debt ceiling. On the data front, April US retail sales could be a useful barometer of consumer demand while the German ZEW business survey may also be of note.
Last week, the S&P 500 fell by 0.2% (MTD -1.1%, YTD +7.8%), while the Euro Stoxx 50 declined by 0.6% (MTD -1.0%, YTD +12.0%). Concerns over US regional banks and the US debt ceiling weighed on stock market sentiment.
US April consumer prices showed a continued deceleration to 4.9% yoy, slightly below consensus expectations of 5.0% while core prices rose by 5.5%, in line with projections. The former was the lowest level since April 2021.
The quarterly Senior Loan Officer Opinion Survey showed both tightening lending standards and falling loan demand (see analysis here). This, combined with last week's initial jobless claims rising more than expected to 264K and the highest since October 2021, suggest a softening economic backdrop.
US Treasury yields for most maturities fell (bond price rise and yields fall) as softer economic data suggested the Fed would need to pause its tightening cycle and ease later this year. Rate markets now expect three rate cuts through end-2023.
Concerns around the US debt ceiling rose as negotiations in Washington stalled and the date at which the government would not be able to meet its payment requirements is only a few weeks away. Treasury Secretary Janet Yellen has suggested that this date, known as the X-date, could be as soon as June 1st. As a result, the one-month US Treasury yield hovered around all-time highs at around 5.45%.
Meanwhile, the Bank of England hiked by 25bps as expected, but also now does not expect a recession this year amid better-than-expected labour market conditions. Rate markets project between one and two more rate hikes from the Bank this year.
Focus is set to remain on negotiations around raising the US debt ceiling. On the data front, April US retail sales could be a useful barometer of consumer demand while the German ZEW business survey may also be of note. On Friday, Fed Chair Powell is part of a panel with former Chair Ben Bernanke speaking on monetary policy.
Mon 15th
US - May Empire State survey
Eurozone - March industrial production
Tue 16th
US - April retail sales and industrial production, May business leaders survey and National Association of Home Builders survey
Europe - Q1 Eurozone employment, May Germany ZEW business survey, UK April labour market report
Wed 17th
US - April housing starts
Thu 18th
US - April leading indicators, existing home sales
Fri 19th
US - Fed Chair Powell takes part in panel discussion on monetary policy
Eurozone - April Germany producer prices
This is intended as a general review of investment market conditions. It does not constitute investment advice and has not been prepared based on the financial needs or objectives of any particular person.