Rates have trended higher, with little directional stimulus from data to follow up CPI and retail sales releases, but the current 10-year UST yield of 4.37% is down from the previous increase of 4.5%. This is still well below the standard. CPI print for March.
The Fed's speakers on Thursday were a little more hawkish, but that came from speakers with known biases. But even Fed officials like John Williams said they wouldn't read too much into any single announcement, although it was certainly a positive development after a series of disappointing inflation numbers.
Regarding the market's overarching theme, the next key data point is obviously the PCE data at the end of May, but the market should now have a relatively firm idea of ​​what to expect given the PPI and CPI announcements. And the more pressing questions about inflation will become more important. The front is what his CPI release will be next month. With little other data to digest at the beginning of next week, we think it remains possible for market rates to rise again.
However, a softening macro outlook could be a driving factor late next week. The provisional S&P PMI for May will be an indicator of sentiment after the April ISM fell below the benchmark 50 two weeks ago, suggesting a contraction. This could put further pressure on 5- to 10-year Berry yields, a curve that has flattened in the 2s-10s over the past few days. Yesterday, the 2s10s US Treasury curve fell below -40bp, making it the flattest/most inverted level since just after the hot March CPI release. This is a reminder that inflation is key to the Fed's rate-cutting ambitions.
For at least the past few days, foreign bond yields have tracked U.S. Treasuries, with the 10-year spread between U.S. Treasuries remaining at just over 190 basis points despite significant price movements. Spreads could move further with next week's PMI release. The euro area has shown some recovery, albeit from a low level, but with the cyclical recovery slowly gaining momentum, the ECB's room to cut interest rates from June onwards may be seen as limited. There is. For now, the market is moving closer to pricing in another round of three across-the-board price cuts following the U.S. data, but there is little domestic news to support re-pricing.