U.S. Treasury gold rose overnight! The U.S. economy is showing signs of a downturn, and expectations for interest rate cuts are heating up again

Finance Associated Press

2024-06-04 09:00Published on the official account of Cailianshe under Shanghai Poster Industry Group

Finance Associated Press, June 4 (edited by Xiaoxiang) On Monday, when the stock prices of many stocks on the New York Stock Exchange were "cleared" and the "roaring kitten" set off a frenzy of retail investors to attract everyone's attention, many industry insiders may easily ignore that the market trend in the macro field has also undergone a major change overnight.

This week is the ECB's "interest rate cut week" that many market participants have anticipated, and at this critical moment when the global easing tide is expected to sweep in completely, the market's pricing of the Fed's interest rates seems to be shifting......

On Monday, Treasury yields of multiple maturities plunged in double-digit basis points. By the end of the New York session, the 2-year Treasury yield was down 7.1 basis points at 4.814%, the 5-year Treasury yield was down 10.9 basis points at 4.409%, the 10-year Treasury yield was down 11.8 basis points at 4.391%, and the 30-year Treasury yield was down 11.8 basis points at 4.538%.

Bond yields are inverse to prices, which means that Treasury prices have rebounded across the board overnight.

Judging from the market trend, the yield on the 10-year Treasury note, known as the "anchor of global asset pricing", fell to a two-week low on Monday. Buying in the bond market seemed to be pouring in overnight.

Meanwhile, the U.S. dollar fell to a three-week low on Monday. The ICE U.S. Dollar Index, which measures the greenback's value against a basket of six major currencies, fell 0.4% to 104.14 in late trade, after falling to 104.13 intraday, its lowest since mid-May. Spot gold rose 0.9% to close at around $2,347.12 an ounce.

Judging from the news, the situation of the sharp fall of the dollar overnight and the rise of US bonds and gold seems to have a great correlation with the performance of a series of US economic data......

A report from the Institute for Supply Management (ISM) on the same day showed that the U.S. ISM manufacturing index fell more than expected to 48.5 in May, the 18th contraction in 19 months. Signs of weakness in the US manufacturing sector appear to be becoming more prominent: the index of new goods orders fell by the most in nearly two years, while the manufacturing price payment index, a measure of input inflation, retreated from its highest level since mid-2022.

Another set of data released on the same day also showed that U.S. construction spending also unexpectedly fell for the second consecutive month in April, due to a decline in non-residential activity.

Will Compernolle, macro strategist at FHN Financial, said: "This [manufacturing data] is yet another survey that seems to be showing pessimism and weakness in economic activity. The data comes against the backdrop of a slowdown in personal spending that we have seen last week, as well as a range of other data showing signs of weakness in economic activity."

Many industry insiders said that although the US economic growth has not yet slowed to the point where policymakers are worried, if the current trend continues, this may soon be the case.

The U.S. Commerce Department released a slew of data on Friday, and investors' attention was initially focused on the personal consumption expenditures price (PCE) index. Because this is the Fed's preferred measure of inflation, it will help officials decide whether to cut interest rates before the US presidential election in November. The data showed that the PCE index rose 2.7% year-on-year in April, in line with economists' expectations and the same increase as the previous month.

However, the headline economic activity data released at the time seemed to be more interesting in the end. According to many traders, it is worth paying special attention to the data on personal income and consumer spending. Revenue rose 0.3% month-on-month, in line with expectations and down from 0.5% in March. Personal spending rose just 0.2 percent, less than expected and slowing from the 0.7 percent pace in March. Inflation-adjusted real consumer spending and disposable income both fell 0.1%.

The data seems to show that the cumulative effects of inflation over the years seem to be finally starting to ripple through consumers and eat into their savings.

Also on Friday, the Chicago Business Climate Index fell to 35.4 in May from 37.9 in April. The index, also known as the Chicago Purchasing Managers' Index (PMI), is a measure of economic activity in the region. While the importance of regional PMI data should not be overstated, the Chicago index has always been more noteworthy than most other indices. According to FactSet, the index has hit its lowest level since May 2020, when the pandemic lockdown began.

All these figures come after the US gross domestic product (GDP) growth rate in the first quarter was revised down to 1.3% on an annualized basis last Thursday, down from the preliminary reading of 1.6%. This is mainly due to lower consumption estimates, which again indicate that consumer confidence is low. The U.S. economy is now expected to grow by just 1.2% in the second quarter, down from the 2.7% expected a few weeks ago, according to a note by Capital Economists.

There is no doubt that the repeated performance of US economic data that has repeatedly missed expectations has made many people in the industry question the exceptionalism of the US economy.

"Investors and markets are starting to believe that the U.S. outperforming theme is starting to wane," said Boris Kovacevic, global macro strategist at payments firm Convera. He was referring to the outperformance of the world's largest economy, the world's largest economy, relative to the rest of the world.

"It's not quite over yet, but markets are now questioning how long the theme of U.S. outperformance can last," he added.

According to CME Group's FedWatch tool, traders now price in a 60% probability of a Fed rate cut in September, a significant recovery from last week.

This week's main US economic data will be Friday's May non-farm payrolls, with the US May CPI report on 12 June being the next major focus. Other employment data this week includes Tuesday's Job Openings and Labor Turnover Survey (JOLTS) report for April, and Wednesday's "small non-farm" ADP data for May.

(Finance Associated Press Xiaoxiang)

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