The Market Today

Mixed U.S. Data; ECB and Fed Messages Diverge

by Craig Dismuke, Dudley Carter


Retail Sales Remain high but Inflation Cutting into Real Growth: Retail sales rose 0.5% MoM in March, slightly weaker than the expected 0.6% gain.  However, February’s tally was revised up from +0.3% MoM to +0.8% making the March level of sales more than 0.4% higher than was expected.  The spike in oil prices drove gasoline sales up 8.9% for the month, adding to the inflation drag on real core sales.  Auto sales disappointed, once again, down 1.9% as inventory constraints remain a problem.  Non-store retailer sales fell 6.3%, now down 10% over the last two months after a temporary Omicron boost in January. Elsewhere, the nominal details were quite strong.  Particularly strong were general merchandise sales (+5.4%), electronics and appliances sales (+3.3%), sporting goods / hobby / book sales (+3.3%), and clothing and accessories (+2.6%).  On a disappointing note, when excluding autos, building materials, and gasoline sales; core sales actually fell 0.1% for the month.  Adding the impact of inflation, real core sales fell 0.5%.  This highlights the impact of higher inflation on real measures of economic activity.

New Jobless Claims Disappoint, Continued Filings Creep to Five-Decade Low: Initial jobless claims rose more than expected during the week ended April 9 while continuing claims one week earlier dropped more than forecasted to their lowest level since March 1970. Seasonally adjusted initial claims rose 18k to 185k, the highest in five weeks. Unadjusted claims rose 28k to 223k, the largest weekly increase since the first week of January and one that was relatively broad across states. While the move higher in claims warrants watching considering the elevated economic uncertainty, the level of claims remains historically low. Continuing claims for the week ended April 2 fell 48k to 1.475mm, below expectations of 1.5mm and the lowest in more than 50 years.

Consumer Confidence, Inventories, and Fed Communications: The University of Michigan’s April report on consumer confidence (9:00 a.m. CT) is expected to decline further as inflation continues to weigh on consumers.  The index is already at its lowest level since 2011.  February’s business inventory report (9:00 a.m.) is expected to show the inventory rebuild continuing.  Three Fed officials are on the calendar today: New York’s Williams (7:45 a.m. CT), Cleveland’s Mester (2:50 p.m.), and Philadelphia’s Harker (5:00 p.m.).  FINRA has recommended an early close for


Fed’s Waller Wants Restrictive Policy This Year: Fed Governor Waller told CNBC Wednesday that he believes inflation has peaked and will begin to slowly moderate, but repeated that he supports frontloading monetary policy tightening. Recent economic data support his belief that the Fed should raise its target rate by 50 bps at the May meeting and continue with additional rate increases through the remainder of the year. “We want to get above neutral certainly by the latter half of this year and we need to get closer to neutral as soon as possible,” Waller said. While markets are worried such an aggressive posture could push the economy into recession, Waller said he believes a soft landing for the economy is “completely feasible.”

ECB Keeps Rates Steady, Confirms End of Asset Purchases in Relatively Calm Decision: The statement led with address of the war in Ukraine, saying it is “weighing heavily on the confidence of businesses and consumers.” Officials confirmed that net asset purchases will conclude in the third quarter, but kept a relatively calm tone on the outlook for additional policy changes considering record inflation pressures in the Eurozone. Despite noting inflation has “intensified across many sectors,” the ECB “will maintain optionality, gradualism and flexibility” but pledged to “take whatever action is needed” to meet their mandate. “Any adjustments to the key ECB interest rates will take place some time after the end of the Governing Council’s net purchases under the APP and will be gradual,” the Statement noted.


Treasury Yields Fell Despite Record-Fast Producer Price Inflation: Treasury yields extended Tuesday’s decline during Wednesday’s trading session, a counterintuitive move considering the March PPI report showed producer price inflation posted record gains on both a monthly and annual basis. Despite the broadly firmer reading on producer prices, Treasury yields dove lower after the release and stock index futures erased pre-market losses. Tech stocks ran in front of other sectors, supported by the cash-flow friendly pullback in rates, with cyclical sectors such as materials and energy tailing with solid gains of more than 1.3%. Industrials rose by around 1%, buoyed primarily by a nearly 7% jump in airline stocks following an upbeat earnings report from Delta. Financials were one of two sectors to suffer a daily loss, dragged lower by a more than 1% decline for the banking subsector. JPMorgan’s earnings report disappointed expectations and knocked 3.3% off the company’s share price. The S&P 500 rose 1.1%, dividing a smaller 1.0% jump for the Dow and a 2.0% rally for the Nasdaq. By the time the bond market closed, the Treasury curve had pared a significant portion of its earlier decline. The 2-year yield ended 5.7 bps lower at 2.35% after falling as far as 2.27% after the PPI report. The 5-year yield closed down 3.7 bps at 2.65%, notably above its intraday low of 2.57%, and the 10-year yield edged 2.3 bps lower to 2.70%, up from its daily low of 2.64%. The spread between the 2-year and 10-year Treasury yields widened more than 3 bps to 34 bps, its widest level since early March.

Treasury Yields Extend Declines after ECB Decision: European sovereign yields moved higher ahead of the ECB’s latest policy decision while Treasury yields were little changed in front of a flurry of bank earnings and important domestic economic data. Both European and U.S. yields, however, dropped quickly after the ECB’s statement left any clearly more hawkish signal for President Lagarde’s press conference or the next meeting in June (more above). Germany’s 10-year bund yield erased a gain to 0.80%, falling to a session low of 0.75%. Yields on Italy’s 10-year BTP dropped from 2.42% to 2.34%. Treasury yields tracked the declines across Europe, with the 2-year yield falling to a session low of 2.30% and the 10-year yield dropping to its session low of 2.64%. Before the latest weekly jobless claims report and first look at retail sales in March, the 2-year Treasury yield had recovered somewhat to 2.34%, a 1.2 bp decline from Wednesday, and the 10-year yield was trading back at 2.66%, 3.5 bps lower on the day. U.S. stock index futures were mixed and little changed, unexcited by better earnings from several Wall Street banks following JPMorgan’s disappointing report on Wednesday. Europe’s Stoxx 600 was 0.4% higher and near its session peak after the ECB’s decision. Stocks earlier closed mostly higher across Asia, with equities in South Korea and Singapore lagging after central banks in both countries tightened monetary policy. Following the first wave of U.S. economic data, the 2-year yield rose and was 1.1 bps higher on the day while the 10-year yield was back near unchanged.

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