6/2/2023 4:47:21 PM
Trading this week was largely buoyed by the debt ceiling deal reached by President Biden and the Republicans last weekend. The bill successfully made its way through both the House and Senate, taking a US debt default off the table. Traders also appeared to become incrementally more comfortable that the Fed will pause or skip raising rates at the FOMC meeting later this month. Deflationary pressures were seen in the May ISM data in particular, while comments from FOMC voters Jefferson and Harker about a ‘skip’ more than offset continued hotter than expected employment readings, and the ongoing dissatisfaction of Fed hawks with the pace of disinflation. Weakness in Chinese economic data kept the specter of additional stimulus from the PBOC in play and Chinese equity markets strong into week’s end, with the Hang Seng surging 4% on Friday alone. European inflation readings also continued to show real improvement on both the headline and core, but it was not enough to dramatically change the tone coming for ECB officials who still largely expect two more 25 basis point hikes through this summer.
The May US employment report showed few signs that tightness in labor markets is demonstrably easing. Payrolls continue to post substantial gains, and the jobless rate for prime-aged workers (which is probably the most useful reflection of underlying trends) was unchanged. Wage growth slowed along with hours worked and the unemployment rate jumped three-tenths higher helping offset the robust payroll growth. Fed hawks will likely remain disappointed though by the slow progress back to more moderate labor market conditions. Nevertheless, markets continued to show comfort that monetary policy moderates will be successful in swaying the FOMC to pause/skip a hike at this month’s meeting, giving officials the ability to assess additional data before deciding to move rates further into restrictive territory. Oil prices moved higher into what could be another contentious OPEC+ meeting this weekend, but prices remain mired around $72/barrel for WTI. By Friday, the S&P 500 clearly broke above 4200, pushing through the top end of a trading range that has held since October as bears appeared to throw in the towel. The US dollar and yields rose while copper prices touched a 2-week high. The VIX dipped below 15 for the first time since the fall of 2021 and had its lowest weekly close since 2020. For the week, the S&P500 rose 1.8%, while the DJIA and Nasdaq each added about 2%.
The corporate calendar was notably busy this week with another swath of retailer and tech earnings coming alongside key investor conferences which offered fresh color into the marco landscape. In total, managements continued to paint a picture of a solid consumer holding up, but with signs of slowing emerging. Weak earnings reports from Advanced Auto Parts, Dollar Tree, Macy’s, Victoria’s Secret and Dollar General suggested the lower end consumer may be balking at the higher prices they now face. Meanwhile, Lululemon’s superior growth suggested that the higher end consumer remains flush. Mastercard, American Express, and Visa all offered color that consumer spending has remained positive into in May. Their comments along with raised guidance from American Airlines and Southwest Air confirmed that a good chunk spending continues to find its way to services/experiences over goods. Higher profile US bank executives like Jamie Dimon and Bran Moynihan confirmed loan growth has slowed and credit conditions have tightened into May but overall credit quality remains strong and they are not overly concerned about a near term economic crisis. Reports from Dell, HPE, and HPQ showed the PC cycle and elongated enterprise spend continues to serve as a headwind for portions of tech. Strong results and guidance from Broadcom reminded investors of the growth opportunities flagged by Nvidia last week.
SUN 5/28
(US) PRES BIDEN AND HOUSE SPEAKER MCCARTHY HAVE REACHED AN AGREEMENT “IN PRINCIPLE” TO RAISE DEBT LIMIT BY 19 MONTHS UNTIL JAN 1ST, 2025; McCarthy expect Congress vote on the deal on Wed, May 31st
MON 5/29
(US) US 5-year Credit Default Swaps (CDS) rise to 59bps from 52bps w/w
NVDA Released MGX server specification, a modular reference architecture for system manufacturers enabling fast and cheap server variations to fit a broad range of AI, high-performance computing applications
TUES 5/30
(ES) SPAIN MAY PRELIMINARY CPI M/M: -0.1% V 0.0%E; Y/Y: 3.2% V 3.6%E
(CN) China Finance Ministry to extend tariff waivers on some US goods until end-2023 (**Note: 7-month extension)
(EU) ECB's Centeno (Portugal): Spain CPI reading shows Europe inflation easing; Reversal of supply shocks should slow inflation
(US) MAY CONSUMER CONFIDENCE: 102.3 V 99.0E
(US) MAY DALLAS FED MANUFACTURING ACTIVITY: -29.1 V -18.0E
(US) Deputy Treasury Sec Adeyemo: Debt ceiling deal is a good faith compromise that takes debt default off the table
HPQ Reports Q2 $0.80 v $0.76e, Rev $12.9B v $13.1Be
(CN) CHINA MAY MANUFACTURING PMI (GOVT OFFICIAL): 48.8 V 49.5E (2nd straight contraction and lowest since Dec)
WED 5/31
(DE) GERMANY MAY CPI NORTH RHINE WESTPHALIA M/M: -0.2% V +0.4% PRIOR; Y/Y: 5.7% V 6.7% PRIOR
(DE) GERMANY MAY NET UNEMPLOYMENT CHANGE: +9.0K V +13.5KE; UNEMPLOYMENT CLAIMS RATE: 5.6% V 5.6%E
V Reported May US payment volume +5%, Debit +6% y/y; Global processed transactions grew 9% y/y - filing
AAP Reports Q1 $0.72 v $2.60e, Rev $3.42B v $3.43Be; Cuts outlook and dividend; Gene Lee assumes role of interim executive Chair
(DE) GERMANY MAY PRELIMINARY CPI M/M: -0.1% V +0.2%E; Y/Y: 6.1% V 6.5%E
(US) Nevada reports Apr casino gaming Rev $1.16B, +2.8% y/y, Las Vegas strip Rev $624.7M, +5.3% y/y
(US) MAY CHICAGO PURCHASE MANAGER’S INDEX (PMI): 40.4 V 47.2E
(US) APR JOLTS JOB OPENINGS: 10.103M V 9.400ME
CRM Reports Q1 $1.69 v $1.61e, Rev $8.25B v $8.17Be; Raises FY EPS, affirms Rev guidance
CRWD Reports Q1 $0.57 v $0.50e, Rev $692.6M v $677Me
AI Reports Q4 -$0.13 v -$0.17e, Rev $72.4M v $72.3Me
(CN) CHINA MAY CAIXIN PMI MANUFACTURING: 50.9 V 49.5E (moves back into expansion, 11-month high)
THRS 6/1
(HK) Macau May Casino Rev (MOP) 15.6B; Y/Y: +365.9% v +370.0%e
(UK) MAY NATIONWIDE HOUSE PRICE INDEX M/M: -0.1% V -0.5%E; Y/Y: -3.4% V -3.7%E
(ES) SPAIN MAY MANUFACTURING PMI: 48.4 V 48.0E (2nd straight contraction)
(UK) APR MORTGAGE APPROVALS: 48.7K V 53.5KE
(EU) EURO ZONE MAY CPI ESTIMATE Y/Y: 6.1% V 6.3%E; CPI CORE Y/Y: 5.3% V 5.5%E
(EU) EURO ZONE APR UNEMPLOYMENT RATE: 6.5% V 6.5%E
(US) MAY ADP EMPLOYMENT CHANGE: +278K V +170KE; Pay growth slowing substantially
(US) Q1 FINAL NONFARM PRODUCTIVITY: -2.1% V -2.4%E; UNIT LABOR COSTS: 4.2% V 6.0%E
(US) INITIAL JOBLESS CLAIMS: 232K V 235KE; CONTINUING CLAIMS: 1.795MM V 1.80ME
(US) MAY FINAL S&P/MARKIT MANUFACTURING PMI: 48.4 V 48.5E
(US) MAY ISM MANUFACTURING: 46.9 V 47.0E
(US) DOE CRUDE: +4.5M V -1.5ME; GASOLINE: -0.2M V -1ME; DISTILLATE: +1M V +0.5ME
(US) Atlanta Fed GDPNow: Raises Q2 GDP estimate to 2.0% from 1.9% prior
BAC CEO: US consumer spending is slowing; Deposits will be similar to other large banks
(US) Fed releases factors affecting reserve balances (H.4.1): Discount window borrowing fell/ to $3.97B v $4.2B w/w; Banks have borrowed $93.6B v $91.9B w/w from new BTFP facility
(US) US Senate passes the debt-ceiling bill (as expected)
(US) US Pres Biden: I look forward to signing the debt-ceiling limit bill into law ASAP
FRI 6/2
AMZN Said to be in talks to offer low cost mobile service to US Prime members - press
(US) MAY CHANGE IN NONFARM PAYROLLS: +339K V +195KE
(US) MAY AVERAGE HOURLY EARNINGS M/M: 0.3% V 0.3%E; Y/Y: 4.3% V 4.4%E
(US) MAY UNEMPLOYMENT RATE: 3.7% V 3.5%E (6-month high)
MMM Reportedly in at least $10B PFAS water pollution settlement; Board approval of settlement would allow 3M to avoid Jun 5th trial - press
(US) Weekly Baker Hughes Rig Count: 696 v 711 prior (-2.1% w/w)
