5/10/24 – Softer economic data not enough to offset higher for longer tone in bond market

After last week’s repricing of the yield curve to again reflect the possibility of one rate cut this year, the interest market barely moved this week.  The dearth of economic data allowed the 2-year/30-year yield curve to remain at a 20-basis point inversion with the 2-year notes closing the week modestly higher at 4.86%.  That was good news for the equity market as the S&P 500 continued to rally and now stands less than 1% away from its all-time high as earnings releases dwindle to a trickle.

While it barely caught the attention of investors, the University of Michigan survey was notable in its weakness.  The sentiment index fell from 76.2 to 67.4 indicating the dour mood in which consumers are finding themselves.  Digging further into the report, consumer expectation for inflation over the coming year has moved up to 3.5%.  That’s the second consecutive uptick from the 2.9% touched in January.  Clearly the average consumer is not buying the message that inflation is on its way to 2%.

Next week will offer clues to what the weather or not the Michigan surveys are reflective of hard data.  Specifically, the consumer price index year-over-year is expected to cool to 3.6% from the 3.8% reported last month.  Also, on Wednesday retail sales for April will be reported.  The expectation is the month-over-month measure will cool to a still healthy gain of 0.4% from the torrid 0.7% registered in March.