Firmer US data saw treasury yields rise last week

The final University of Michigan consumer sentiment index rose to 69.1 in May from the preliminary estimate of 67.4 but remained at a six-month low. Both the current conditions and the expectations components improved from the flash estimate. Inflation expectations also came in lower than the preliminary reading with consumers expecting inflation to average 3.3% over the next year and 3.0% over 10 years - still well above the Fed’s 2% target.

US durable goods orders grew 0.7% m/m in April (preliminary estimate), much better than the expected decline of -0.8% m/m. The March reading was revised lower to 0.8% from 2.6% previously. Some of the strength in April was due to better-than-expected aircraft and auto orders, and excluding transport, the increase in durable good orders was 0.4% m/m.

UK retail sales came in softer than expected in April, declining -2.3% m/m and -2.7% y/y. The soft April figures were partly due to bad weather and an early Easter (although the data is seasonally adjusted), but the March figures were revised lower as well. However, tax cuts, an increase in the minimum wage and overall real wage growth as inflation falls are expected to boost discretionary incomes and thus spending in the months ahead.

It is a quiet start to the week with UK and US markets closed today. German CPI and US PCE data will be in focus later this week. 

Today’s Economic Data and Events

12:00 Germany IFO business climate (May): forecast 90.5 previously 89.4

Fixed Income

• US treasury yields ended the week higher, with 2y yields closing at 4.95% up from 4.85% on Monday. 10y yields rose 3bp over the week to close at 4.465% on Friday. The 30y was largely unchanged w/w at 4.57%.
• European benchmark yields also rose last week, with gilts gaining more than 9bp to end the week at 4.26% after a snap election was announced for 4 July. French 10y yields rose 6bp w/w to 3.05% while the 10y bund yield rose 5.5bp to 2.58%.
• Moody’s confirmed Saudi Arabia’s A1 credit rating for Saudi Arabia and maintained a positive outlook.

FX

• The USD index strengthened 0.3% last week on higher treasury yields. Most major currencies lost ground against the greenback, with the exception of GBP, which gained 0.3% against the USD. JPY depreciated 0.85% to end the week at 156.99/USD.
• The commodity currencies were also softer last week, with AUD almost 1% weaker w/w while CAD lost 0.4% w/w.

Equities

• Better than expected earnings from Nvidia last week helped push the Nasdaq100 up almost 1% on Friday bringing the weekly gain for the index to 1.4%. The S&P 500 also closed higher on Friday, but was broadly flat w/w, while the DJIA declined -2.3% w/w.
• European equity indices also ended last week in the red, with the FSTE100 down -1.2% w/w and the CAC40 down -0.9% w/w.
• Regional equities didn’t fare much better, with the DFMGI down -1.4% w/w and the ADGI down -2.3% w/w. The Tadawul ASI fell -2.4% w/w.

Commodities

• Oil closed lower last week with Brent losing -2.2% w/w to close at USD 82.12/b while WTI lost -2.9% w/w to finish at USD 77.72/b. The higher-for-longer rhetoric from Fed officials is raising concerns that tighter monetary policy will dampen economic activity and thus demand for energy. Higher US oil inventories reported by the EIA also weighed on oil prices last week.
• Precious metals also lost ground with gold down -3.4% w/w, silver losing -3.9% w/w and platinum down -5.3% w/w. Copper prices also fell -3.2% w/w but were still up 5.6% over the last month.