Treasury yields took a breather on Friday with core PCE largely meeting analyst expectations on the high-side (+0.3% MoM in headline and core, and 2.7%/2.8% YoY), while core services rose +0.39% MoM vs +0.19% in February. Real personal spending also surprised on the upside, adding further hawkish pressures to the FOMC meeting later this week, as the economy and price pressures remain far stickier they would have hoped. U-Michigan consumer sentiment was largely in line at 77.2, though the 1yr inflation gauge re-accelerated to 3.2% from 2.9% in March, and 5–10y inflation increased to 3.0% from 2.8%.
However, with treasury positioning close to maximum bearish already, interest rates fell round 3bp across the board in relief as PCE wasn’t even worse than what was feared, while Nasdaq jumped +2% on the yield move and robust tech earnings. The bigger news was in JPY, with the currency now above 159 and tracking 25-year highs at around 160, with the BoJ still opting for a dovish stance against a hawkish Fed.
The FOMC will be the main event this week, though we will be book-ended by US JOLTS and NFP before and after. CPI and Nvidia earnings are priced to be the largest market movers later on this month, where chip-makers will be looking to turn their fortunes around after turning in their worst monthly return since last October. Furthermore, as a bit of amusement, WSJ reported that former President Trump’s allies have been busy formulating a back-channel plan to ‘remove’ Fed independence should he be re-elected back into office. It’s hard for us to see that ever happening, but certainly a humorous thought to entertain in some alternative scenario (BTC to 200k+??).
Despite uncooperative US data last week, US corporate earnings proved to be a bright spot again as 1Q24 earnings have been revised up 3.3% week-on-week on strong performances thus far. Furthermore, a sudden revitalization of dividend announcements (Meta, Google) has given SPX and another new growth impetus. There is now growing pressure on other tech names to initiate dividend programs or switch some of their buybacks into cash payouts, especially given the strong balance sheet for many SPX incumbents that can comfortably afford a regular distribution.
In crypto, after seeing one of the worst outflows last Thursday with a net -$218M being withdrawn via ETFs, Friday saw another -$84M in withdraws as none of the main ETF issuers saw any meaningful buying interests. Furthermore, open interest on CME for BTC futures has fallen appreciably from its recent record high, albeit still much higher than 2023 levels, but we have definitely seen a palpable ease-off in mainstream FOMO, especially with interest rate cuts looking less and less likely. Native interest remains focused on BTC runes / memecoins and L2 restaking and yield-plays on ETH, areas that are completely foreign to the average investor. We remain cautious on price action in the near-term, and will prefer a wait-and-see mode until after the FOMC and CPI later in May.
