5/24/24 – Since October US Treasury 2-year notes have been printing higher lows in price. Does 5% provide support again?
The release of the May 1st FOMC minutes was as expected, with the members concurring that the rate of inflation is stubbornly stuck at levels above which they are comfortable. The second sentence of the minutes read “Domestic data releases over the intermeeting period pointed to inflation being more persistent than previously expected and to a generally resilient economy,” That’s pretty much says it all. The economy continues to hum along despite the FOMC’s tightening of monetary policy. A Few economists continue to rumble that the Fed will need to again hike the overnight rate but that’s far from consensus.
The main driver keeping the Fed from lifting the Fed Funds rate again is the housing market, which worsened last month. On Tuesday and Thursday, the government released data on existing home sales and new home sales for April, and it wasn’t good. Existing homes sold at an annual rate of 4.14 million units, down 1.9% from the already depressed level registered in March. New home sales were even worse, falling 4.7% from the March level.
Despite the relatively weak economic data, interest rates rose from last Friday’s close. The two-year Treasury note closed the week at 4.94%, 12 basis points higher than last Friday. The catalyst driving yields higher was the hawkish tone of the Fed minutes. The equity market came to a different conclusion, as the S&P 500 closed the week mostly unchanged. Much of the froth in the stock market came from Nvidia’s stellar earnings report and a hope that artificial intelligence is going to perpetuate the economic expansion and with it, take equity prices higher.
Next week’s calendar is full of secondary data but there will be eight different Fed members speaking through the week with New York Fed President John Williams giving a speech before the Economic Club of New York. Williams is considered neutral, neither a dove nor a hawk, so any hints on the current policy are likely to impact the market.
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