Consumer Economy
ISM Services (Index): 51.6, prior 50.8; 50 = neutral.
No recession signal from ISM services, although it is not particularly strong.
Credit & Rates
Fed Balance Sheet (WALCL); 6.711T +1.6B, (+0.02% w/w)
Total Bank Credit (TOTBKCR); 18.354T +55.2B (+0.30% w/w)
30 Year Mortgage Rate (MORTGAGE30US); 6.76% unchanged
10 Year Treasury (DGS10); 4.36% +3 bp (+0.69% w/w)
20+ Year Bond (TLT); -0.78% w/w
No QT from the Fed this week. Normal bank credit exploded (+15.6% annualized) higher, erasing last week’s contraction. No recession signal here either.
Friendly Fed didn’t cut rates this Wednesday; they seem worried about both inflation and unemployment happening at the same time. Wolf has the details:
Fully in Wait-and-See Mode, Fed Keeps Rates at 4.25%-4.50%, Frets about Higher Uncertainty, Higher Inflation, and Higher Unemployment [May 7]
New: “Uncertainty about the economic outlook has increased further.”
New: “The Committee is attentive to the risks to both sides of its dual mandate and judges that the risks of higher unemployment and higher inflation have risen.”
(source – wolfstreet)
The yield for the longer end of the curve continued moving higher; money trickled out of the 1-5 year instruments, with the 3-6 Month bills seeing slight inflows. Not recessionary.
A veteran trader I used to follow told us: when you want to see the trend, zoom out your timeframe. In that spirit – here’s a monthly 10-year treasury yield model. For whatever reason, the 10-year yield is in a mild uptrend. This is not recessionary.
CME Fedwatch Tool projects a 17% chance of one cut at the June 18th meeting.
They say the Fed follows the market – it doesn’t lead – and right now the longer-term rates continue to slowly move higher. I suspect the Fed also causes short-term rate moves via jawboning, so this is not a perfect formula. Here’s what rate moves looked like from 2006 to present. Way back in 2007, see how the 3-month Treasury yield (red line) plunged well before the Fed Funds rate moved lower (black line)?
by davefairtex 
