Market Brief – Friday 5/29/20

Today’s disappointing economic data sent stocks and Treasury yields lower in early trading. Fed Chair Powell spoke this morning and reiterated the Fed doesn’t believe negative rates are an appropriate policy tool. The market disagreed and immediately priced in negative rates by June 2021. Investors remain on edge ahead of President Trump’s press conference on China.

The Fed’s preferred gauge of inflation, Personal Consumption Expenditures, confirmed deflation is here by falling -0.5% in April and slowing to +0.5% from this time last year. Excluding food and energy, Core PCE fell -0.4% in April and slowed to +1.0% from this time last year.

Personal incomes shot up +10.5% in April due to generous Federal unemployment benefits while personal spending crashed -13.6% in April as household reign in spending. Inflation-adjusted personal consumption fell -13.2% in April.

Retail inventories, excluding automobiles, fell -1.1% in April and preliminary wholesale inventories rose +0.4% in May. The goods trade balance showed an increase in imports by falling to -69.68 billion in April from -64.98 billion the prior month.

While some regional Fed surveys have started to turn around as states reopen, the hotly watch Chicago PMI further contracted to 32.3 in May from 35.4 last month. Since PMIs are month over month, the report shows the factory sector in the Chicago region worsened.

The University of Michigan consumer sentiment survey was flat in May as current conditions rose, likely due to government transfers, while hope crumbled. Inflation expectations rose as consumers now believe inflation is coming.

The New York Fed announced today it was slowing its purchase of U.S. Treasury securities to $4.5 billion per day starting next week, or $22.5 billion per week. The New York Fed will continue to purchase $4.5 billion per day of Mortgage-Backed Securities, bringing the weekly total between the two to $45 billion.

Stocks rose and Treasury yields fell following President Trump’s press conference on China. Stocks continued to rally after the press conference to close higher on the day. Treasury bonds also rallied and closed higher on the day, with 30-year Treasury yields closing just over 1.4%. Investors continue to bid crude oil prices higher despite a large number of crude oil tankers floating out near the Houston terminal and the California coast.