- Debt ceiling talks continue, with President Biden expected to speak with House GOP leaders in order to press for an agreement. Drama around the X-date is dominating Treasury bills, with the yield on the 4-week bill maturing June 13 now the highest point on the yield curve around 5.3%. Our base case is that an agreement to raise the debt ceiling will be reached, but headline drama is likely to continue as Washington tends to wait for last-minute negotiations before reaching a deal. Market volatility could continue in the interim.
- April advance retail sales rose +0.4%, slightly below the estimate of 0.8% and compared to -0.7% in March (revised). Advance Retail sales excluding the volatile auto category were up +0.4%, in-line with the estimate of +0.4% and vs. prior -0.5% (revised). It should be noted that retail sales are reported in nominal terms, not real terms, and not adjusted for inflation.
- Existing home sales for April came in at 4.28 million, near the estimate for 4.30 million (SAAR). Housing starts for April came in as estimated at 1.40 million (SAAR).
- Weekly initial jobless claims were 242,000, better than the estimate for 251,000. Continuing claims were 1.799 million, compared to the estimate for 1.82 million.
- GDPNow: The GDPNow model estimate for real GDP growth (seasonally adjusted annual rate) in the second quarter of 2023 is 2.9% as of May 17, up from 2.6% on May 16.
- Equities: Equity markets had a very strong week, as the Nasdaq advanced +3.0% and the S&P 500 gained +1.6%. Momentum was driven by better sentiment in financials, solid earnings reports from retailers, and optimism around the debt ceiling debate. Wal-Mart (WMT) and Deere & Co (DE) posted positive earnings surprises, while Home Depot (HD), Target (TGT) and Foot Locker (FL) reported disappointing results. In tech, Netflix (NFLX) reported subscriber figures for its ad-based tier level for the first time, leading to a 10% surge in its stock price.
The Week Ahead
- S&P Global preliminary May PMIs are expected on Tuesday. For April, all three PMIs (composite, manufacturing, and services) were slightly above 50, indicating growth.
- April Personal Consumption Expenditures (PCE) data, which is the Fed’s preferred inflation metric, is estimated to be up +0.3%, compared to +0.1% in March. Core PCE is estimated to be steady versus March, up +0.3%, while unchanged on a YoY basis (est. +4.6% for April, +4.6% for March).
- Equities: For the upcoming week, we have continued earnings in the retail sector from Lowe’s (LOW), Costco (COST), Kohl’s (KSS), Dollar Tree (DLTR) and Burlington (BURL). Anticipated tech names Nvidia (NVDA), Palo Alto (PANW), Intuit (INTU), Agilent (A), Snowflake (SNOW), Analog Devices (ADI) and Workday (WDAY) are also set to report.
Market Summary – Returns and Yields
Definitions, sources, and disclaimers
- Gross Domestic Product (GDP): A comprehensive measure of U.S. economic activity. GDP is the value of the goods and services produced in the United States. The growth rate of GDP is the most popular indicator of the nation’s overall economic health. Source: Bureau of Economic Analysis (BEA).
- GDPNow is not an official forecast of the Atlanta Fed. Rather, it is best viewed as a running estimate of real GDP growth based on available economic data for the current measured quarter. There are no subjective adjustments made to GDPNow—the estimate is based solely on the mathematical results of the model. In particular, it does not capture the impact of COVID-19 and social mobility beyond their impact on GDP source data and relevant economic reports that have already been released. It does not anticipate their impact on forthcoming economic reports beyond the standard internal dynamics of the model.
- The Current Employment Statistics (CES) program produces detailed industry estimates of nonfarm employment, hours, and earnings of workers on payrolls. CES National Estimates produces data for the nation, and CES State and Metro Area produces estimates for all 50 States, the District of Columbia, Puerto Rico, the Virgin Islands, and about 450 metropolitan areas and divisions. Each month, CES surveys approximately 142,000 businesses and government agencies, representing approximately 689,000 individual worksites. Source: Bureau of Labor Statistics (BLS).
- Initial Claims: An initial claim is a claim filed by an unemployed individual after a separation from an employer. The claimant requests a determination of basic eligibility for the UI program. When an initial claim is filed with a state, certain programmatic activities take place and these result in activity counts including the count of initial claims. The count of U.S. initial claims for unemployment insurance is a leading economic indicator because it is an indication of emerging labor market conditions in the country. However, these are weekly administrative data which are difficult to seasonally adjust, making the series subject to some volatility. Source: US Department of Labor (DOL).
- The Consumer Price Index (CPI): Is a measure of the average change over time in the prices paid by urban consumers for a market basket of consumer goods and services. Indexes are available for the U.S. and various geographic areas. Average price data for select utility, automotive fuel, and food items are also available. Source: Bureau of Labor Statistics (BLS).
- The national unemployment rate: Perhaps the most widely known labor market indicator, this statistic reflects the number of unemployed people as a percentage of the labor force. Source: Bureau of Labor Statistics (BLS).
- The number of people in the labor force. This measure is the sum of the employed and the unemployed. In other words, the labor force level is the number of people who are either working or actively seeking work.Source: Bureau of Labor Statistics (BLS).
- Advance Monthly Sales for Retail and Food Services: Estimated monthly sales for retail and food services, adjusted and unadjusted for seasonal variations. Source: United States Census Bureau.
- Federal Open Market Committee (FOMC): Responsible for implementing Open market Operations (OMOs)–the purchase and sale of securities in the open market by a central bank—which are a key tool used by the US Federal Reserve in the implementation of monetary policy. Source: Federal Reserve.
- The Federal Funds Rate: Is the interest rate at which depository institutions trade federal funds (balances held at Federal Reserve Banks) with each other overnight. When a depository institution has surplus balances in its reserve account, it lends to other banks in need of larger balances. In simpler terms, a bank with excess cash, which is often referred to as liquidity, will lend to another bank that needs to quickly raise liquidity. Source: Federal Reserve Bank of St. Louis.
- The “core” PCE price index: Is defined as personal consumption expenditures (PCE) prices excluding food and energy prices. The core PCE price index measures the prices paid by consumers for goods and services without the volatility caused by movements in food and energy prices to reveal underlying inflation trends. Source: Bureau of Economic Analysis (BEA).
Sources: U.S. Bureau of Economic Analysis (BEA), Bureau of Labor Statistics (BLS), U.S. Department of Labor (DOL), Federal Reserve, Federal Reserve Economic Database (FRED), Federal Reserve Bank of Atlanta, U.S. Census Bureau, Department of Housing and Human Development (HUD), U.S. Department of Agriculture, U.S. Energy Information Administration (EIA), U..S Department of the Treasury, Office of the United States Trade Representative (USTR), U.S. Department of Commerce, data.gov, investor.gov, usa.gov, congress.gov, whitehouse.gov, U.S. Securities and Exchange Commission (SEC), Morningstar, The International Monetary Funds (IMF), The World Bank (WB), European Central bank (ECB), Bank of Japan (BOJ), European Parliament, Eurostats, Organization for Economic Co-operation and Development (OECD), National Bureau of Statistics of the People’s Republic of China, Organization of the Petroleum Exporting Countries (OPEC), World health organization (WHO).
Financial Markets – Recent Prices and Yields, and Weekly, Monthly, and YTD (Table): Bloomberg, Weekly Market Data is in USD and refers to the following indices: Macro & Market Indicators: Volatility (VIX); Oil (WTI); Dollar Index (DXA); Inflation (CPI YoY); Fixed Income: All U.S. Bonds (Bloomberg Aggregate Index); Investment Grade Corporates (Bloomberg US Corporate Index); US High Yield (Bloomberg High Yield Index), Treasuries (ICE BofA Treasury Indices); Equities: U.S. Industrials (Dow Jones Industrial Average); U.S. Large Caps (S&P 500); U.S Tech Equities (Nasdaq Composite); European (MSCI Euope), Asia Pacific (MSCI AP), and Latin America Equities (MSCI LA); Sectors (S&P 500 GICS Sectors) Source: Bloomberg. Fed Funds Rate probabilities, Source: CME FedWatch Tool.
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