Geo-Political Events Will Drive Treasury Market Direction This Week

May 28, 2019
Beach Palm Trees and Grass Huts

Geo-Political Headlines Likely to Dictate Trading

In this holiday-shortened week,  and first unofficial week of summer, expect thinly-staffed trading desks and limited volumes as attentions turn to  summertime activities and less on investing and economics.  With that being said, geo-political developments are still likely to dictate market direction. While Congress is on recess this week trade-related news will still generate headlines as well as Brexit news and the fallout from the weekend’s E.U. Parliamentary elections. Away from political headlines, Personal Income and Spending numbers for April will give us an indication on the health of the all-important consumer while May consumer confidence readings, April trade balance and pending home sales round-out the top-tier economic releases.


Treasuries
Treasury Curve Today Week Change
3 Month 2.34% -0.03%
6 Month 2.36% -0.04%
1 Year 2.31% -0.02%
2 Year 2.14% -0.06%
3 Year 2.08% -0.07%
5 Year 2.09% -0.09%
10 Year 2.29% -0.10%
30 Year 2.72% -0.10%
Short-Term Rates
Fed Funds 2.50%
Prime Rate 5.50%
3 Mo LIBOR 2.52%
6 Mo LIBOR 2.55%
12 Mo LIBOR 2.62%
Swap Rates
3 Year 2.099%
5 Year 2.088%
10 Year 2.241%
Economic Calendar
Date Statistic For Briefing Forecast Market Expects Prior
May 28 S&P CoreLogic 20-City HPA (YoY) Mar 2.52% 2.50% 3.00%
May 28 Conf. Board Consumer Confidence May 130.0 130.0 129.2
May 30 GDP Annualized (QoQ) 2nd Est. 1Q S 3.1% 3.0% 3.2%
May 30 Goods Trade Balance Apr -$72.5b -$72.5b -$71.4b
May 30 Pending Home Sales (MoM) Apr 0.5% 0.5% 3.8%
May 31 Personal Income Apr 0.3% 0.3% 0.1%
May 31 Personal Spending Apr 0.2% 0.2% 0.9%
May 31 Core PCE (YoY) Apr 1.6% 1.5% 1.6%
May 31 U. of Michigan Consumer Sentiment May F 102.0 101.0 102.4

calendar icon Top 5 Events for the Week

May 28 - 31, 2019

1. Geo-Political Developments – All Week
2. April Personal Income & Spending – Friday
3. April Goods Trade Balance – Thursday
4. April Pending Home Sales – Thursday
5. May Consumer Confidence – Tues./Friday

 

1.  Geo-Political Developments – All Week

While Congress is on recess this week—so a break from the back and forth over subpoenas and testimony, etc..—any trade-related headlines will have the potential to push a thinly-traded Treasury market around and the initial push is for lower yields as the fallout from the imminent departure of U.K. Prime Minister Theresa May and what that means for Brexit generates safe-haven trades into Treasuries. Also, the just-completed E.U. Parliamentary elections had centrist parties losing seats to fringe groups on both sides: liberal and nationalist-leaning. While not a clear rebuke of the E.U. the election results are likely to upset the status quo that had been in place for 62 years. That too is providing an early flight-to-safety bid in Treasuries.

 

2.  April Personal Income & Spending – Friday

Away from the geo-political angle, the April Personal Income and Spending numbers will generate a good bit of attention but we’ll have to wait till Friday to see them. Expectations are that incomes will increase 0.3% for the month versus 0.1% in March. Spending is expected to increase 0.2% versus the robust 0.9% in March. Spending adjusted for inflation is expected to be flat versus a 0.7% pick-up in March. So, the all-important consumer looks to have retrenched again in April after a pop in spending the prior month.  Finally, the Fed’s preferred inflation measure (core PCE) is expected to increase 0.2% for the month and 1.6% YoY, same as in March.

 

3.  April Goods Trade Balance – Thursday 

With trade war news all the rage, Thursday brings some hard numbers in the form of the April Goods Trade Balance.  The goods trade deficit is expected to widen slightly to  -$72.5 billion versus -$71.4 billion the prior month. The average over the past year has been -$72.7 billion so a near on average deficit is forecast. The fairly stable deficit is a reflection of the strong dollar and weaker overseas economies. Despite tariffs and threats of tariffs changes to the trade balance continue to be driven more by basic economic fundamentals: namely dollar strength that makes imports cheaper and exports more expensive and the differences in economic activity. With our economy outperforming almost all other developed markets, and with it two-thirds consumption-based, the deficit will continue to persist for some time to come and that will be a drag to GDP.

 

4.  April Pending Home Sales – Thursday

The housing market was the first sector to exhibit a slowdown last year in the face of the Fed’s quarterly rate-hiking policy. With a pause now in place the Fed is looking to the housing market as an early indicator of whether the break is allowing activity to lift in interest rate-sensitive sectors like housing. Pending home sales have the advantage too of being based on contract signings versus closings so they are the timeliest indicator of market activity.  Expectations are for  pending sales of existing homes to post a modest 0.5% increase versus a 3.8% gain in March. Thus, a minimal gain is expected in April which indicates housing continues to hold those recent gains in activity but nothing to indicate a real acceleration in sales levels.

 

5. May Consumer Confidence – Tues./Friday

This holiday-shortened week gives us two different looks at consumer confidence with the more timely Conference Board’s reading due today. Expectations are for the confidence index to inch higher to 130.0 versus 129.2 in April. The average over the last year has been 130.1 so a near on-average reading is expected which reflects a nice rebound off lower readings at the end of last year and the beginning of 2019. On Friday, the University of Michigan releases its final estimate of consumer sentiment for May and that index is expected to be nearly unchanged at102.0 versus 102.4 in the prior report. This confidence reading has averaged 97.5 over the past year so a solid above-average reading is expected. In summary, both reports are expected to show a consumer still exuding confidence despite all the talk of trade wars etc., and that should keep consumer consumption at decent levels into the summer.

 

U. of Michigan Consumer Sentiment 

 

 


bar graph icon  Investment Yield Ranges Over Last Year

 

US TreasuriesFHLB Agency BulletsMortgage Backed SecuritiesMunicipalsUS Corporate - FinancialsUS Corporate - Financials 

Source: Bloomberg

 


 

Tom Fitzgerald Signature 

Thomas R. Fitzgerald

Director, Strategy & Research

Tfitzgerald@centerstatebank.com

 

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