The Market Today

Household Net Worth Surged in 1Q; Monthly Budget Deficit Hits 8-Month Low


by Craig Dismuke, Dudley Carter

TODAY’S CALENDAR

Bloomberg Survey of Economists and Consumer Expectations: Today’s economic calendar will bring the June Bloomberg Survey of Economists’ results (8:00 a.m. CT) and the first look at the U.M. Consumer Confidence data for June (9:00 a.m.).  Key will be inflation expectations and some of the underlying metrics regarding future expectations.

 

24 HOURS OF MARKET ACTIVITY

Stocks Hit a Record and Treasury Yields Threatened Early March Lows Despite Fastest Core Inflation in Nearly 30 Years: Tech stocks led a rally on Wall Street Thursday as the Treasury curve flattened precipitously lower, paradoxical moves when considered alongside May’s CPI report showing the fastest annual increase in the core price index since 1992. The Treasury market had sold off immediately following the 7:30 a.m. CT release of the inflation data, as more firmer-than-expected monthly increases signaled that base effects were not the only dynamic driving YoY rates higher. The move up was fleeting, however, after a dig into the details provided further evidence that most of the heat came from areas experiencing supply disruptions – particularly in autos – and others adjusting to a quick pace of economic reopening – sectors such as airfares and car rentals, forces which are considered to likely have a temporary effect. While some less-affected categories, such as rents, also firmed up the base, the magnitude of the topline increases didn’t appear as concerning as at first glance. As a result, the 5-year Treasury yield fell 3.8 bps to 0.712% as the 10-year yield declined 5.9 bps to 1.432%, both the lowest levels since March 2. The move in yields dragged financials lower but provided a more-than-offsetting boost to tech shares and bond-proxy sectors that lifted the S&P 500 0.5% to a new all-time high.

U.S. equity futures were higher at 7 a.m. CT, indicating the S&P 500 will open Friday at another record, while the Treasury curve had pushed off of three-month lows, despite another decline for yields across Europe. Equities slid in China and Japan but were upbeat across the rest of Asia. The Stoxx 600 leveraged widespread gains across Europe to notch a 0.5% gain to a new all-time high. European yields were lower again, however, led by declines in peripheral countries, a day after the ECB upgraded its outlook but restated it believes stronger inflation will prove transitory. After Thursday’s statement indicated emergency asset purchases would continue for at least another quarter, President Lagarde said there were no discussions about paring those purchases at the meeting and any such talks “will come in due course.” Italian and Greek yields were sharply lower Friday. Treasury yields, however, had moved up modestly before U.S. trading began. The 10-year yield was 1.8 bps higher to 1.45% before 7:30 a.m. CT.


NOTEWORTHY NEWS

Household Net Worth Surged in 1Q; Monthly Budget Deficit Hits 8-Month Low: Largely overshadowed by conversations about Thursday’s hotter-than-expected inflation data, a second round of reports showed a quarterly surge in household net worth and a smaller-than-expected U.S. budget deficit for May. Stoked by continued home price appreciation, a stimulus-driven surge in deposits, and new record highs for equities, household net worth climbed by just under $5.0 trillion dollars in the first quarter to a record $136.9 trillion. The offset to the $5.2 trillion increase in total assets was a modest $0.2 trillion increase in liabilities, nearly two-thirds of which were related to higher home mortgage balances. Separately, the Treasury released monthly budget figures showing a decline in the monthly deficit from -$225.6b in April to -$132.0b in May, the smallest since September 2020. Revenues rose from $173.9b to $463.7b, more than offsetting the slight increase in spending from $572.6b to $595.7b.

Another Group of Senators Tries to Build a Bridge to an Infrastructure Agreement: Shortly after the Treasury market closed on Thursday, a bipartisan group of 10 Senators announced that they had reached an agreement on infrastructure investments. The Senators said in a statement, “We are discussing our approach with our respective colleagues, and the White House, and remain optimistic that this can lay the groundwork to garner broad support from both parties and meet America’s infrastructure needs.” Multiple reports indicated the plan would invest around $1 trillion, which Bloomberg reported would be spread over eight years, include roughly $580 billion in new spending above current baseline spending levels, and be fully paid for without raising taxes.


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