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Daily Commentary

Commentary prepared by Alloya Investment Services, a division of the wholly owned CUSO of Alloya Corporate Federal Credit Union. Alloya Investment Services is a leading broker/dealer consultant to credit unions.

Friday, May 17, 2024 at 8:00 am CT
Commentary prepared by Tom Slefinger, SVP, Director of Institutional Fixed Income Sales, Registered Representative of ISI*, Alloya Investment Services

Market Indications

Historic Treasury Curves Graph 051324

Other Market Indicators

Market Indicators
2s/5s Tsy Spread-0.38+0.01
2s/10s Tsy Spread-0.40+0.02
2s/30s Tsy Spread -0.25+0.03
DJIA-30 39,869.38-38.62
S&P-500 5,297.10-11.05
Dollar Idx 104.72+0.26
CRB Idx 289.97+0.02

Daily Commentary

Recap – The Dow touched the 40,000 milestone in intra-day trading yesterday before ending the session modestly lower. Bonds are trading with a slight defensive bias as futures went back to pricing in one Fed rate cut instead of two as yesterday’s wave of policy-speak was hawkish to say the least (even with sharp weakness across housing starts, manufacturing output and the Philadelphia Fed index). Fed Presidents Loretta Mester (Cleveland), Tom Barkin (Richmond) and John Williams (New York) all reinforced their “higher for longer” message yesterday. Later today, we will hear from Fed officials Christopher Waller and Neel Kashkari (Minneapolis) for further clues about the interest rate path.

With respect to the labor market, the initial jobless claim data from yesterday did confirm that the prior spike to 232,000 in the May 4 week was an aberration after all, reflecting seasonal maladjustment as it turns out from public servants in New York who, unbelievably, can claim jobless benefits during spring break!

Even so, the 222,000 reading for the May 11 week was a tad above the 220,000 consensus view which took the four-week moving average up to 218,000 from 215,000 – the highest in six months. The backlog of continuing claims, in a sign of high and rising unemployment levels, rose to 1.794 million (May 4 week) from 1.781 million, and flirting with the highest levels since November 2021.

The industrial recession continues unabated. Industrial activity stagnated in April instead of inching ahead +0.1% as the consensus expected. And, as has been the case with all the other data of late, there were downward revisions (March was taken down to +0.1% month-over-month from +0.4%). The really big downside and disturbing surprise in the report was the -0.3% month-over-month contraction in manufacturing activity. A +2.8% jump in utilities (after a +1.6% March rebound) masked what truly was a report replete with output contraction. On a year-over-year basis industrial production is down -0.4% and manufacturing activity is off -0.5%. It’s a good thing that we live in an economy dominated by health, finance, government and consumer services.

On the housing front, housing starts came in at 1.36 million annualized units in April, a huge miss relative to the consensus estimate of 1.421 million units. As with payrolls and retail sales, the back data were revised, with March now at 1.28 million instead of 1.321 million units as previously reported. The average of the past two months is the lowest since the dark days of mid-2020.

Building permits also fell -3.0% month-over-month to 1.44 million units (at an annual rate) and sharply undercut the consensus forecast of 1.480 million units and is now at the lowest point since December 2022. There is no amount of lipstick that will make this look like anything but a pig of a report. I suppose the notion that the economy has magically become non-interest sensitive this cycle is being put to the test.

Have a great weekend!

Economic Calendar

May 13 - 17, 2024: The Week Ahead

Economic calendar chart 051324

Future Fed Expectations

Source: Bloomberg

Future Fed Expectations 051324

Expected Fed Funds Path 051324

Select Probabilities based on the Futures
Probability of Fed Funds rate CUT on June 12. 2024-10%
Probability of Fed Funds rate CUT on July 31, 2024-22%

**All quoted rates are indications and are subject to change without notice.
* ISI is a member of the FINRA/SIPC.

The information contained herein is prepared by ISI Registered Representatives for general circulation and is distributed for general information only. This information does not consider the specific investment objectives, financial situations or particular needs of any specific individual or organization that may receive this report. Neither the information nor any opinion expressed constitutes an offer, or an invitation to make an offer, to buy or sell any securities. All opinions, prices, and yields contained herein are subject to change without notice. Investors should understand that statements regarding future prospects might not be realized. Please contact Alloya Investment Services to discuss your specific situation and objectives.