The Market Today
Vining Sparks Economic Outlook Webinar: How Much Longer Can This Cycle Last?
by Craig Dismuke, Dudley Carter
Vining Sparks 2Q Economic Outlook Webinar: Vining Sparks will host its 2nd Quarter Economic Outlook Webinar at 10:00 a.m. CT this morning We will highlight why we think the economy remains in a stable position despite all of the weak economic data and uncertainty that currently prevails. We will also highlight why the recent curve inversion looks more like a false flag (for now) than previous inversions (see Chart of the Day). Additionally, we will dig into the details of why the Fed has made such an abrupt shift in its policy bias, providing some key metrics for investors to watch going forward. If you would like to register for the event, it is not too late. Please click here to do so.
PPI Remains Modest with PCE Expected to Fall to 1.6% in March: Producer price inflation was largely as-expected in March, although a larger-than-expected 5.6% increase in energy prices (final demand) pushed the headline PPI up 0.6% MoM (exp. +0.3%). Excluding food, energy, and trade prices, core PPI was unchanged in March (exp. +0.2%) bringing the YoY rate down from 2.3% to 2.0%, the weakest growth rate in 18 months. While the headline measures are being whipped around by volatile energy prices, core measures remain a bit on the soft side. After yesterday’s soft CPI report, dragged down by a noteworthy, one-off weakness in apparel prices, the inputs for core PCE inflation (the Fed’s preferred measure of consumer inflation) were pointing to March’s report slowing to just over 1.6%. Today’s PPI data does not materially alter that outlook with softness in hospital outpatient care but small gains in other categories of medical care.
Jobless Claims Hit New Cycle Low: Initial jobless claims for the week ending April 6 fell from 204k to 196k, the lowest level of the cycle and the lowest level since 1969. The 4-week moving average also fell to the lowest level of the cycle, down to 207k. With all of the uncertainty in other areas, the labor market continues to show strong reports.
Bloomberg Survey of Economists: The April Bloomberg Survey of Economists is scheduled for 8:45 a.m. CT. First-quarter growth is likely to be notched higher at the expense of second-quarter projections. More interestingly will be the revisions to interest rate forecasts in the aftermath of the Fed’s policy shift in March.
Fedspeak: There are several Fedspeakers on the calendar today including, Vice Chair Clarida, New York Bank President Williams, St. Louis Bank President Bullard, Minneapolis Bank President Kashkari, and new Governor Bowman.
Yesterday – Stocks Rose and Yields Fell after ECB’s Decision, Soft Inflation, As-Expected Fed Minutes: U.S. stocks weathered a storm of important global events on Tuesday to push the S&P 500 up 0.4%, its ninth gain in the last 10 sessions. Real estate, tech, and consumer stocks led the gains. The ECB left its policy unchanged ahead of U.S. trading while President Draghi said that slower growth had spilled over into 2019, inflation pressures remain muted, and the risks remain tilted to the downside. U.S. inflation data was mixed with firmer energy prices pushing headline inflation up 0.4% while record weakness in apparel, attributed largely to a change in methodology, left core inflation weaker-than-expected at 0.1%, despite firmness in other categories. There were several Brexit updates throughout the day but no definitive decision about an extension before the markets closed. And the Fed’s March Minutes included no surprises, signaling patience was warranted in response to “muted inflation pressures” and “significant uncertainty” that was clouding the outlook. Treasury yields swung around the CPI data but were dragged down by European yields’ dovish response to Draghi’s post-conference marks and a solid auction of 10-year notes. The 2-year yield fell 2.8 bps to 2.32% while the 10-year yield dropped 3.6 bps to 2.47%.
Overnight – Brexit Deadline Delayed Until October: For a second day in a row, a shaky start for Asian equities has given way to a firmer tone across Europe that helped push U.S. futures into positive territory ahead of U.S. trading. The biggest news overnight was the EU and U.K. agreeing to extend the Brexit deadline for a second time. PM May had asked for a delay until June 30 while reports had indicated that the EU was considering pushing the deadline to the end of December or March. The latest extension until October 31 roughly splits the difference, and includes a progress review in June and an option for the U.K. to leave earlier if Parliament agrees to a deal in the interim. While the extension removes some near-term uncertainty, there are still risk factors on the medium-term horizon to be faced by PM May’s government, including another potential cliff edge in six months’ time. Her conservative party’s support for such a long delay is fractured and the U.K. is now likely to be forced to participate in EU Parliament elections in May. The British pound was roughly unchanged as an extension was previously priced in but U.K. yields did tick higher. After falling yesterday in response to a host of factors, Treasury yields had recovered overnight. Just before 7 a.m. CT, the 2-year yield was 1.4 bps higher at 2.34% while the 10-year yield had added 1.6 bps to 2.48%. Yields moved up even more, around 3 bps for the day, after the surprisingly strong data for inflation and jobless claims.