Week in Review: June 14, 2024

June 17, 2024

Recap & Commentary

Markets ended the week higher as investors embraced cooler-than-expected May consumer inflation data, which was partially offset by a more hawkish tone from the Fed following its June FOMC meeting.

Interest rates fell sharply, with the 10-Year Treasury yield shedding 0.21% to end the week at 4.23%, its lowest level since the start of April. The decline was aided by an unexpectedly strong Treasury auction, along with May’s inflation data. That resulted in the Bloomberg US Aggregate Bond Index, the broadest measure of the US bond market, enjoying its best week since December.

As expected, the Federal Reserve’s FOMC Committee left rates unchanged at 5.25-5.50%. More importantly, in its updated economic projections, committee members revised upwards their year-end forecast for the Fed Funds rate by 0.5% to 5.1%, implying just one rate cut before year end.

At his post-meeting press conference, Fed Chair Jay Powell noted that “labor market have returned to about where they stood on the eve of the pandemic—relatively tight but not overheated.” With respect to inflation and the potential for rate cuts, Powell said the committee does not have “the confidence that would warrant beginning to loosen policy at this time.” After arguably being too optimistic on how inflation data unfolded in 4Q23, Powell and others are likely to be more cautious in the months ahead even if the inflationary trends witnessed in May continue into the summer.

Despite the Fed’s more hawkish tone regarding the possibility of rate cuts in 2024, markets ended the week still pricing in two, with the first expected to occur at the Fed’s September meeting.

Economic Commentary

Consumer inflation (CPI) showed signs of improvement in May as the headline rate registered 0.0% growth from April, its slowest pace in two years. Compared to a year ago, headline CPI rose 3.3%, down from April’s 3.6% pace. Excluding food and energy prices, core CPI rose 0.2% from April, the slowest pace since October, while the annual pace slowed to 3.4%, its best reading since April 2021. Shelter prices remained stubbornly high, rising 5.4% from a year ago, accounting for two-thirds of the overall increase in core CPI.

Producer prices (PPI) also improved in May with prices contracting 0.2% in May after rising 0.5% in April. Compared to a year ago, prices rose 2.2%. On a core basis, prices were flat for the month, while rising 2.3% from a year ago.

Consumer sentiment fell for a third consecutive month in June, reaching a seven-month low, dragged down by persistent concerns about inflation and weakening income. That was most apparent in the current conditions sub-index which fell to its lowest level since the end of 2022. One-year inflation expectations were unchanged at 3.3%.

Weekly jobless claims rose 13K to 242K, a 10-month high.  Claims data tends to be volatile but bears watching in the context of other indicators which have suggested a slowing in labor market conditions.

Of Note

European Parliament elections saw right-wing parties pick up a number of seats, particularly in Germany and France. The results will influence how the EU tackles multiple issues including, trade and ongoing support for Ukraine.

Market Indices   (As of 06/14/2024)

The Week Ahead

• Retail Sales
• PMI
• Housing Starts
• Existing Home Sales
• Industrial Production
• Weekly Jobless Claims