Source: Caixin.
① This week is the 'interest rate cut week' that many market participants have anticipated in Europe; ② At this key moment when the global easing trend is expected to come completely, the market's pricing of the Fed's interest rates also seems to be undergoing a transformation... ③ On Monday, the yields of multiple maturities of US bonds experienced a single-day plunge of two-digit basis points.
On Monday, amidst the major malfunction of multiple stocks on the nyse and the frenzy of retail investors led by the "Roaring Kitty," many industry insiders may overlook the significant shift in market sentiment in the macro sector overnight.
This week is the "rate cut week" that many market participants have anticipated. At this critical moment when the global easing trend is expected to sweep through, the pricing of the US Federal Reserve's interest rate seems to be undergoing a change...
On Monday, the yields of multiple maturities of US Treasury bonds experienced a single-day plummet of two-digit basis points. By the end of the New York session, the yield of the 2-year US Treasury bond dropped 7.1 basis points to 4.814%, the yield of the 5-year US Treasury bond dropped 10.9 basis points to 4.409%, the yield of the 10-year US Treasury bond dropped 11.8 basis points to 4.391%, and the yield of the 30-year US Treasury bond dropped 11.8 basis points to 4.538%.
Bond yields move inversely with prices, which means that US Treasury prices rebounded across the board overnight.
From the trend of the market, the 10-year Treasury yield, which is known as the "anchor of global asset pricing", has already fallen to a two-week low on Monday. Buying interest in the bond market seems to have surged overnight.
At the same time, the US dollar fell to a three-week low on Monday. The ICE US Dollar Index, which measures the value of the US dollar against six major currencies, fell 0.4% to 104.14 at the end of the session, and had fallen to 104.13 during the session, the lowest since mid-May. Spot gold rose 0.9% to around $2347.12 per ounce.
From the news perspective, the overnight situation where the US dollar plummeted and US Treasury yields and gold rose seems to have a great correlation with a series of US economic data...
A report released by the Institute for Supply Management (ISM) on that day showed that the ISM Manufacturing Index in the US for May unexpectedly fell to 48.5, shrinking for the 18th time in the past 19 months. Signs of weakness in US manufacturing seem to have become more prominent: the New Orders Index set its largest decline in nearly two years, and the Manufacturing Prices Paid Index, which measures input inflation, fell from its highest level since mid-2022.
Another set of data released that day also showed that US construction spending unexpectedly fell for the second consecutive month in April due to a reduction in non-residential activities.
Will Compernolle, macro strategist at FHN Financial, said:"This (manufacturing data) is another survey that seems to show pessimism and economic weakness. The release of the data comes against the backdrop of slowing personal spending last week and a series of other data showing signs of economic weakness."
Many industry insiders say that although US economic growth has not yet slowed to a level that worries policy makers, if the current trend continues, this situation may soon emerge.
The US Department of Commerce released a large amount of data last Friday, and investors initially focused on the Personal Consumption Expenditure (PCE) price index. Because this is the inflation indicator favored by the Federal Reserve, it will help officials determine whether to cut interest rates before the November US presidential election. The data showed that the PCE index in April increased by 2.7% year-on-year, in line with economists' expectations, and the increase was flat with the previous month.
However, the overall economic activity data released at that time seemed to be even more eye-catching. Many traders said that the personal income and consumption expenditure data are worth special attention. Income increased by 0.3% month-on-month, in line with expectations, and the increase was lower than the 0.5% in March. Personal spending increased by only 0.2%, lower than expected, and the growth rate slowed from 0.7% in March. Adjusted for inflation, real consumer spending and disposable income both fell by 0.1%.
These data seem to show that the cumulative impact of inflation over the years has finally begun to affect consumers and erode their savings.
Also on Friday, the May Chicago Business Activity Index fell from 37.9 in April to 35.4. The index, also known as the Chicago Purchasing Managers' Index (PMI), is an indicator of economic activity in the region. Although the importance of regional PMI data should not be exaggerated, the Chicago index has always been more worthy of attention than most other indices. According to FactSet's data, the index has reached its lowest level since May 2020 when the epidemic was shut down.
Before all these data were released, last Thursday the annualized growth rate of US Gross Domestic Product (GDP) for the first quarter of the year was revised down to 1.3%, lower than the initial value of 1.6%. This is mainly due to the estimated data for consumption being reduced, once again indicating low consumer confidence. According to reports from macroeconomists at Capital Economics, the US economic growth rate for the second quarter is currently expected to be only 1.2%, lower than the 2.7% predicted a few weeks ago.
Undoubtedly, the repeatedly lower-than-expected performance of US economic data has raised doubts among many industry insiders about the exceptionalism of the US economy.
"Investors and the market are starting to believe that the strong performance of the United States is beginning to weaken," said Boris Kovacevic, Convera's global macro strategist for payment companies. He's referring to the superior performance of the world's largest economy, the United States, relative to other economies around the world.
"It's not over yet, but the market is now questioning how long the theme of strong US performance can last," he added.
According to the FedWatch tool of the CME Group, traders currently believe that the probability of a Fed rate cut in September has exceeded 60%, a significant increase from last week.
This week's major US economic data will be Friday's May nonfarm payrolls report, while the US May CPI report on June 12 will be the next major focus. Other employment data this week includes April job openings and labor turnover survey (JOLTS) report on Tuesday, and May's ADP "small nonfarm" data on Wednesday.
Editor/Lambor