More of the same this morning stock indexes rallying, interest rates increasing. Very predictable these days as money moves from one asset class to the other, what stocks do the bond market does the same (stock indexes increase, interest rates increase). The DJIA at 8:30 am ET +367, 10 yr. note 2.89% +1 bp after increasing to 2.93% earlier.
April retail sales at 8:30 am, a little better than forecasts. Sales expected +0.8% from +0.5% in March increased 0.9%, ex vehicles expected +0.4% increased 0.6% but down
from 1.1% in March, ex vehicles and gas expected +0.6%, as reported +1.0%.
US stocks improving with a rally in Chinese tech shares on optimism Beijing may ease up on a yearlong clampdown, also buoyed by data showing the euro-area economy expanded more than initially estimated at the start of the year. The stock market is a market that has been very volatile through the day, so an open higher doesn’t necessarily lead to a strong close. The rate markets at 3.00% fully prices the two 50 bp increases coming from the Fed in June and July if investors continue to believe inflation is moderating as it is currently thought based on inflation data from March and April. One bond-market measure -- the five-year breakeven rate -- is signaling inflation has peaked, not that inflation isn’t going to increases, just not at the pace over the prior nine months.
More data at 9:15 am, April industrial production was expected to be up 0.4%, as reported +1.1%, manufacturing output thought to be +0.3% increased 0.8%. April capacity utilization (factory use) expected at 78.6%, it increased to 79.0% the highest in months.
St. Louis Fed President James Bullard, a hawk and FOMC voter, stressed this morning that inflation is the most pressing issue facing the Fed right now. Five more Fed officials are slated to speak throughout the day, including Chair Jerome Powell at 2 pm.
At 9:30 am the DJIA opened +417, NASDAQ +247, S&P +62. 10 yr. note yield at 9:30 am 2.96% +8 bps. FNMA 4.5 30 yr. coupon -23 bps and 17 bps lower than 9:30 am yesterday.
At 10 am the May NHAB housing market index, expected at 75 from 77 in April; the index dropped to 69 as the outlook sours.
More positive news about inflation coming this morning from JPMorgan Chase & Co. strategist Marko Kolanovic. US and European stock markets are pricing in a 70% chance that the economy will slide into recession in the near-term, according to estimates by JPMorgan’s top-ranked strategist. That compares with a 50% chance priced into the investment-grade debt market, 30% in high-yield debt and up to 20% in rate markets, Kolanovic wrote in a note to clients yesterday. “Either equity markets prove right and a recession takes place, inducing much bigger declines in bond yields, or rate markets prove right and a recession is avoided inducing a recovery in equity markets,” Kolanovic wrote. “Our view remains that the probability of a recession over the next 6-12 months is low and thus stay with a pro risk stance.”
PRICES @ 10:00 AM
10 yr note: 2.98% +10 bp
5 yr note: 2.92% +10 bp
2 Yr note: 2.65 +7 bp
30 yr bond: 3.16% +8 bp
Libor Rates: 1 mo 0.935%; 3 mo 1.455%; 6 mo 2.017%; 1 yr 2.657% (5/16/22)
30 yr FNMA 4.0: @9:30 99.22 -37 bp (-19 bp from 9:30 am yesterday)
30 yr FNMA 4.5: @9:30 101.14 -23 bp (-17 bp from 9:30 am yesterday)
30 yr GNMA 4.0: @9:30 100.48 -27 bp (-15 bp from 9:30 am yesterday)
Dollar/Yuan: $6.7321 -$0.0541
Dollar/Yen: 129.67 +0.53 yen
Dollar/Euro: $1.0533 +$0.0100
Dollar Index: 103.47 -0.71
Gold: $1824.00 +$10.00
Bitcoin: 30,713 +832
Crude Oil: $114.42 +$0.22
DJIA: 32,535 +312
NASDAQ: 11,862 +199
S&P 500: 4060 +51