Europe surprisingly strong, USA unexpectedly weak – such a conclusion can be drawn from the recently published economic data and the situation on the market from the last few days. This impression is even reflected in the discussion on the interest rate policy of individual central banks: a Fed member suddenly talks about a possible pause in interest rate hikes in September, and the number of ECB representatives in favor of an interest rate hike of 50 basis points is growing. On a relatively uneventful Wednesday in terms of data releases, attention is clearly focused on the statements of the relevant central banks. Half a dozen speeches by ECB representatives are scheduled for the morning, and the Fed will publish the FOMC minutes in the evening.
Yesterday was a strange day because almost all the news relevant to the market USA that Picture of the economy losing momentum reflection. This is what it shows real estate market meanwhile clear traces of slip. In April, 17% fewer new homes were sold than in the previous month. The sharp rise in mortgage rates from around 3% at the start of the year to 5¼% recently will likely be a key factor in this development. Other housing market data, especially the corresponding NAHB activity index, recently pointed to a significant slowdown in the US real estate sector. in Manufacturing industry All the Fed’s regional polls point to a decline in activity, yesterday the relevant index for the Richmond region saw its second-largest month-on-month decline since the survey began almost thirty years ago, lowered only by a month of the April 2020 pandemic. USA less than the Purchasing Managers’ Index (PMI) observed in Europe was quite solid for the manufacturing sector, but sent to Services sector signs of weakness. Admittedly, most of the US economic indicators have dropped or been fairly high as we are emerging from a resume boom. However, the degree of deterioration of the high frequency indices surprised observers. Citi Economic data surprise indicator (Economic surprise indicator) has been diving since the end of April. The drop of almost 100 index points in the last four weeks was the strongest in almost 20 years, excluding the pandemic phase.
These changes can perhaps be quite good over the last ones market development explain. In the beginning, it was “just” them stock exchangewhich showed a clear downward trend from the end of March. Since then, the S&P 500 has lost a good 15%. However, the current economic downturn is now also affecting bond market low. On May 6, we achieved a high level of 10Y Treasuries yields slightly above 3%. Since then, the negative correlation between equities and yields (rising yields, falling inventories) has turned into a positive correlation (falling yields, falling inventories). For the last two weeks, even the one that has been in an uptrend for a year has been in the trend dollar lighter. 12/13 By May EUR-USD had dropped below 1.04 and it seemed only a matter of time before parity was reached. It has risen sharply since then, hitting the important technical mark at 1.0750 yesterday but not (yet) exceeding it. On a trade-weighted basis, the dollar has fallen by around 3% in the past two weeks.
Investors are becoming more cautious about the upcoming Fed rate hikes. FOMC member Raphael Bostic recently even mentioned a possible pause in the interest rate hike in September. The ones due tonight minutes On the other hand, the FOMC meeting on May 4 rather reflects the discussion about a steep path of rate hikes, as the economic situation at that time was even more encouraging. The situation in the euro area is completely different. Here the discussion is gaining momentum or not ECB interest rate increases 50 basis points should consider. Austrian councilor Robert Holzmann clearly supports her, Dutch Klaas Knot is also moving in this direction and Martin Kazaks from Latvia is open to it. Half a dozen ECB representatives are likely to liven up this discussion in today’s public appearances. Investors are waiting for their comments in the market environment, which has calmed down for the time being …
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The article Clear signs of weakness from the US first appeared on the onemarkets blog (HypoVereinsbank – UniCredit Bank AG).