US stocks struggled overnight after strong economic data reduced confidence that the Fed would commence cutting rates in June. However, it still remains a case of “when, not if.” US Treasuries surged higher after the PPI came in at 0.6%, well ahead of the 0.3% forecast by economists concerning many that inflation is not yet entirely under control. The Producer Price Index measures the rate of change in prices of goods leaving the factory and is an important measure from the Feds perspective. The strong data overnight adds to concerns generated by the hotter-than-expected CPI report earlier in the week. It was a mixed night for the “Sensational Six”, with Alphabet (GOOGL US) and Microsoft (MSFT US) advancing well over 2% while Nvidia (NVDA US) -3.2% and Tesla (TSLA) -4.1% occupied the “naughty corner”.
- No change; we are looking for consolidation in US equities following their recent strong gains, with last night’s strong data supporting this view.
MM remains neutral toward the S&P500 around the 5125 level in the short term
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US bond yields rallied overnight despite mixed data, PPI came in stronger while Retail Sales were sorter than expected, with the 2’s edging towards their 2024 high. The robust PPI data has cast doubt on the timing and size of the Fed’s interest rate cuts through 2024, which is nothing different from what Jerome Powell et al. have been cautioning markets on for months.
- We continue to expect the US 2s to test 3.5% through 2024/5, but this is likely to be a choppy data-dependent move as traders are already positioned for lower rates.
MM remains bearish towards bond yields in the medium-term
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