Summary
United States: May-laise
- Markets digested a light lineup of economic data on the holiday-shortened week. The second look at first quarter GDP revealed an economy increasingly pressured by high interest rates as headline growth was revised lower. To that end, the April Personal Income and Spending report suggested consumers may be taking their foot off the gas as they round into Q2. The latest read on inflation did not show the “meaningful progress” on inflation the Fed is looking for, but it is at least consistent with cooling price growth and leaves the door open for cuts later this year.
- Next week: ISM Manufacturing Index (Mon.), JOLTS (Tue.), Employment (Fri.)
International: South Africa Heading for Coalition Government; China’s Economy Remains Under Pressure
- South Africa’s incumbent political party is set to lose its legislative majority in National Assembly elections and, in turn, relinquish a piece of policymaking power. But the composition of the legislative coalition will determine the direction of policy as well as the direction of local financial markets. Also, May sentiment data in China were underwhelming, suggesting China’s economy is still under pressure.
- Next week: Mexico Presidential Election (Sun.), Bank of Canada (Wed.), European Central Bank (Thu.)
Interest Rate Watch: Amid Higher Yields, Market Inflation Expectations Remain Stable
- Since the start of the year, expectations for a later start to Fed easing in the wake of stubbornly-high inflation have pushed up benchmark Treasury yields. Notable in the advance of nominal yields has been relatively stable inflation expectations among market participants. Fairly steady breakeven rates suggest markets still view the Fed’s commitment to 2% inflation as credible.
Topic of the Week: “I Am Not Paying $20 for a Hamburger”
- The latest Beige Book unveiled a growing sense of weariness among business owners amid a pullback in discretionary spending. Outlooks grew “somewhat more pessimistic amid reports of rising uncertainty and greater downside risks.”
