Although the markets are pricing in the end of the Fed’s rate hike after a 25 basis point rate hike next month, recent data has not given the FOMC the chance to pause, and this increases the risk of a slowdown/deflation in the economy. There are also concerns about the strength of China’s recovery. Interest rate hikes are expected globally from the Federal Open Market Committee, the European Central Bank and the Bank of England in May. The main uncertainty now is whether these will be the last moves.
this week we DrHowever, the consumer goods report and consumer confidence were weaker than expected and earnings reports added to concerns of a slowdown in growth in the second half. perennial revealed 3.2% March Orders are increasing with an increase of 0.3% in the field of transportation and 9.1% in the field of transportation. Equipment data beat aircraft estimates but fell short, inventories were down entirely due to the aircraft segment, and shipments were up strongly, also led by transportation. All important series in the report were revised downward in February.
Consumer confidence is falling To a 9-month low of 101.3 in April from 104.2 allowed the index to chip away at some of the outperformance of this measure relative to other measures of confidence since peaking in mid-2021. The The drop in consumer confidence joins Michigan sentiment to 63.5 from a 3-month low of 62.0 in March, versus a 13-month high of 67.0 in February and an all-time low of 50.0 last June. We’ve seen a modest confidence update since mid-2022, although all measures have deteriorated sharply from mid-2021 peaks. The Conference Board’s gauge has remained somewhat resilient, but Michigan and IBD/TIPP sentiment are hovering around historically weak levels.
All surveys face headwinds from rising mortgage rates, tightening credit conditions, and lingering recession fears.
Meanwhile, from a news perspective, First Republic Bank shares have been discontinued In Wire headlines that the FDIC could lower FRC’s ratings if a deal doesn’t go through, which would limit its use of the Federal Reserve’s New Bank Financing Program (BTFP) and Federal Discount Window. Shares hit a new record low on the news to $4.76 and are down -95% so far this year. Although they recovered again by more than $5, general jitters are weighing on the major indices as they are down -0.75% on the day, with the S&P 500 down -0.45%. The Nasdaq’s gains were pared and the index is now only 0.40% in the green. FRC has announced that it is looking to sell between $50 and $100 billion in assets, but so far major banks have been reticent to get involved.
Expectations of a Fed rate hike are being scaled back More price cuts are priced in later in the year. First Republic remains in the crosshairs and fears that its problems could spread to a more damaging credit tightening and exacerbate the downward effects on the economy from FOMC interest rate hikes are once again in the picture.
Fed implied funds futures show an increase of 25 basis points on May 3, after which the Fed steps back and then cuts interest rates by about 80 basis points by the end of 2023. The June implied rate fell to 5.037% from 5.120% last week. We still expect growth to be good enough and inflation to remain very high over the coming months to keep the FOMC on its narrow path through June. We believe that FOMC members will continue to resist market expectations for a policy reversal and rate cuts this year.
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Andrea Pechedy
Market analyst
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