Last week, a number of economic data releases had the market on high alert for potential significant impacts as the trade war continues to develop. Consumer confidence data continues to disappoint as ...
Last week, a number of economic data releases had the market on high alert for potential significant impacts as the trade war continues to develop. Consumer confidence data continues to disappoint as the Conference Board Consumer Confidence Index came in at 86.0, the lowest reading in 5 years and barely off the low 85.7 figure dating back to early 2020. On Wednesday, initial estimates for 1Q GDP demonstrated a decline in economic growth for the quarter at -0.3%. However, the nuance of calculating Net Exports suggested that heavy import orders from consumers and businesses attempting to get ahead of the threatened increase in tariffs largely skewed this figure to the downside, despite an otherwise reasonably solid economic performance. The Fed’s preferred inflation measure, core-PCE, came in at a benign 0.0% MoM, suggesting that inflation is not spiraling higher as one could expect from hefty tariffs impacting the cost of consumer products. Finally, on Friday, Nonfarm Payrolls rose by a decent +177k and the Unemployment Rate stayed stable at 4.2%. This benign data fails to offer the Fed incentive to be more aggressive with stimulative policy, and interest rates reacted as such.
Rates closed the week higher with 10-Year US Treasuries near 4.31% as the over-extended Treasury market retraced to levels more inline with a market discounting aggressive Fed policy moves. Equities continue to climb, with the S&P erasing the entire decline that was triggered in early April following the most aggressive Trump tariff threats. With reduced expectations for Fed rate cutting and an “okay” economy, rates reset higher, and equities rallied on elevated expectations of continued strength. I continue to believe that the inflation picture from anticipated tariffs lacks reasonable clarity, and higher interest rates are the more likely scenario until proven otherwise. With regard to equities, I fear unfounded exuberance and wishful thinking are allowing the market to get ahead of itself as more immediate tariff impacts threaten to derail the economic growth prospects going forward. The decent employment data offers the Fed little leverage to justify lowering rates to stimulate the economy. Furthermore, I would expect weaker employment data to follow rising inflation and a weakening economy, so such data will take longer to come to fruition.
The AAA MMD Scale finished the week lower between 10 to 16 basis points. The strongest performance was achieved within the intermediate maturity range of 8-12 years. SMA accounts were active participants, generally extending duration in portfolios. Customer bid-wanted requests were nearly cut in half on a daily basis from what we observed in prior weeks. Municipal funds reversed the seven-week trend of outflows, as demonstrated by over $1 billion of inflows. The decrease in forward supply, with 30-day visible dropping from $25 billion to $17 billion to start the week, added to the positive tone. Negotiated deals were well received throughout the week, with some deals subscribed as much as 18 times over. This made it difficult for street accounts to receive any allotments on primary orders, and customer allotments were meaningfully reduced. The heavy demand for new issue paper spilled over to secondaries as the trade volume drastically increased week over week. This inherently created a stronger bid-side for secondary trading. Although this week was a step in the right direction, we do think volatility will continue to be a threat until there is more clarity surrounding tariffs, inflation, and tax policy.
Ratios:
5 YR (3.93) Ratio @ 75%
10 YR (4.32) Ratio @ 76%
30 YR (4.79) Ratio @ 91%
30-Day Visible Supply @ $18.16 Billion
An index is unmanaged and not available for direct investment. Definitions sourced from Bloomberg.
The Bloomberg Barclays Global Aggregate Negative Yielding Debt Market Value Index represents the portion of the Bloomberg Barclays Global Aggregate Index that measures the aggregate value of global debt with a negative yield. • The S&P 500® is widely regarded as the best single gauge of large-cap U.S. equities and serves as the foundation for a wide range of investment products. The index includes 500 leading companies and captures approximately 80% coverage of available market capitalization. • The NASDAQ Composite Index is a broad-based capitalization-weighted index of stocks in all three NASDAQ tiers: Global Select, Global Market and Capital Market. The index was developed with a base level of 100 as of February 5, 1971.• The Cboe Volatility Index® (VIX) is a calculation designed to produce a measure of constant, 30-day expected volatility of the US stock market, derived from real-time, mid-quote prices of weekly S&P 500® Index (SPX) call and put options with a range of 23 to 37 days to expiration.• The ICE BofA MOVE Index is a yield curve weighted index of the normalized implied volatility on 1-month Treasury options. It is the weighted average of implied volatilities on the CT2 (Current 2 Year Government Note), CT5 (Current 5 Year Government Note), CT10 (Current 10 Year Government Note), and CT30 (Current 30 Year Government Note), with weights 0.2/0.2/0.4/0.2 respectively.• The Markit CDX North America Investment Grade Index is composed of 125 equally weighted credit default swaps on investment grade entities, distributed among 6 sub-indices: High Volatility, Consumer, Energy, Financial, Industrial, and Technology, Media & Tele-communications. Markit CDX indices roll every 6 months in March & September. • The Markit CDX North America High Yield Index is composed of 100 non-investment grade entities, distributed among 2 sub-indices: B, BB. All entities are domiciled in North America. Markit CDX indices roll every 6 months in March & September. • The U.S. Dollar Index (USDX) indicates the general international value of the USD. The USDX does this by averaging the exchange rates between the USD and major world currencies. Intercontinental Exchange (ICE) US computes this by using the rates supplied by some 500 banks.
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