The US session was further influenced by preliminary consumer confidence data released by the University of Michigan which showed a sharp drop in the confidence index to 67.4 from 76.0. Expectations also fell sharply to 66.5 from 75.0, and current conditions also fell to 68.8 from 79.0. The data was made worse when inflation expectations rose to 3.5% from 3.2% last month, the highest level since November 2023. Five-year inflation also rose to 3.1% from 3.0% last month.
Although somewhat shockingly, there were reports that this month was the first month that the survey was conducted electronically versus phone calls (people pick up phones and answer questions about the economy….hmmm). The comment was that people are statistically more pessimistic about inflation when polled online. I wonder if there is also a general pessimism about the economy in general.
However, the news sent returns higher, erasing gains in the Nasdaq in particular which rose +91.13 points at session highs before turning to the downside to as much as -52.74 points lower on the day it hit session lows. . The index ended up closing almost unchanged. The S&P rose 0.17% while the Dow Jones Industrial Average rose for the eighth straight day with a gain of 0.32%.
For the trading week, the Dow Jones closed higher for the fourth straight week. The Nasdaq and S&P indices closed higher for the third week in a row:
- The Dow Jones Industrial Average rose 2.16%.
- The Standard & Poor's index rose 1.85%.
- The Nasdaq index rose 1.14%.
In the US debt market, yields closed higher across the curve with the shorter end higher:
- The two-year yield is 4.871%, +6.5 basis points
- 5-year yield 4.516%, +5.6 basis points
- 10-year yield 4.500%, +5.1 basis points
- The 30-year yield is 4.642%, +4.2 basis points
For the trading week, returns were mixed with the shorter end rising and the longer end falling:
- The two-year rate rose by 5.2 basis points
- Five-year bond prices rose by 2.8 basis points
- 10-year rates fell by -1.2 basis points
- 30-year interest rates fell by -2.6 basis points
There was more Fed talk today with Fed Chairman Kashkari and the Chicago Fed President. Goolsbee and President of the Federal Reserve Bank of Dallas. Lori Logan They're all talking.
The Fed's Neel Kashkari discussed economic and monetary policy issues, highlighting the ongoing challenges in US housing supply and the impact of rising interest rates on reducing that supply in the short term. Kashkari stressed the need to control inflation and pointed out that low interest rates alone will not solve housing problems. He expressed his caution about restricting current monetary policies, pointing out that the business community does not see financial conditions as tight. Currently in “wait and see” mode, Kashkari is open to the possibility of raising interest rates in the future but notes that any decision to increase interest rates would require significant justification. He remains uncertain about the current neutral rate level, suggesting a period of flat rates ahead unless conditions change significantly.
Meanwhile, the head of the Federal Reserve Bank of Chicago said. Goolsbee also talked a lot today about managing inflation, particularly emphasizing the 2% target as an anchor for expectations. He acknowledged the current high inflation expectations in the short term but warned against overreacting to them. Goolsbee stressed that although inflation has not shown signs of stabilizing at 3%, the real federal funds rate is the highest in decades, indicating a restrictive monetary policy stance. He noted that interpretation of the latest data is complicated by positive developments in supply, including a significant increase caused by increased immigration that is adding nearly 80,000 jobs per month. Housing inflation remains a serious concern, as rates contribute to supply problems but do not fully explain the continued high housing inflation. Despite the various economic indicators and housing inflation challenges, Goolsbee remains cautiously optimistic about reaching the 2% inflation target, provided housing inflation declines. He also pointed to the continued recovery of supply chains and the potential lasting benefits from increased labor supply through 2024, while maintaining a position that nothing is off the table in terms of policy adjustments to control inflation.
And finally, the head of the Federal Reserve Bank of Dallas. Lori Logan was probably the toughest of the three. Logan stressed that the Federal Reserve has made significant progress in combating inflation, noting that the economy and labor market are currently strong. However, she expressed her concerns, saying that the battle against inflation is not over yet as the first quarter inflation data was disappointing. Logan noted that there are significant upside risks to inflation and doubts about whether current policy is sufficiently restrictive. She stressed that it is too early to think about lowering interest rates and stressed the importance of maintaining flexibility in monetary policy. In addition, Logan noted that the neutral interest rate level, which balances the economy without stimulating or restricting growth, may have risen, indicating a potential shift in the economic environment that could influence future policy decisions.
In the Forex market, major indices end the day with somewhat bullish and bearish trades. The Canadian dollar was the strongest among the major currencies, while the New Zealand dollar was the weakest.
From strongest to weakest among major currencies
For the trading week, the US dollar ended mixed and was little changed against the major currencies. Here are the percentage changes in the US currency against major currencies:
- EUR, -0.08%
- Japanese Yen, +1.849%
- British Pound, +0.20%
- Swiss franc, +0.16%
- Canadian Dollar, -0.11%
- Australian Dollar, +0.12%
- NZD, -0.9%
Thank you for your support this week and I hope you all have a great weekend.