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 3, 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
Other Market Indicators
| Market Indicators | ||
|---|---|---|
| 2s/5s Tsy Spread | -0.31 | -0.01 |
| 2s/10s Tsy Spread | -0.31 | -0.01 |
| 2s/30s Tsy Spread | -0.15 | -0.01 |
| DJIA-30 | 38,225.66 | +332.37 |
| S&P-500 | 5,064.20 | +45.81 |
| NASDAQ | 15,840.96 | +235.48 |
| Dollar Idx | 105.17 | -0.12 |
| CRB Idx | 284.74 | -0.70 |
| Gold | 2,298.26 | -5.50 |
Daily Commentary
Recap – Despite seeing its revenues decline for the fifth time in the past six quarters (dragged lower by iPhone sales), Apple has bounced after beating consensus and announcing a record $110 billion stock buyback (also raising its quarterly dividend). From my perch, buying back stock means the company is in a very mature stage and potentially ran out of ideas on how to organically grow the business. Nevertheless, the stock market had a strong session yesterday and is up in premarket trade.
Bond yields are stable to lower and the DXY dollar index continues to come off the boil at 105.2. Yet, spot gold continues to soften (-0.2% to $2,300 per ounce – still up over +11.0% for the year), while oil has firmed (West Texas Intermediate (WTI) +0.5% to just over $79 per barrel).
The best reads of the day go to “Stalled Inflation Vexes the Fed. Is It Noise or a New Trend?” from the Wall Street Journal (WSJ). I should add that this was a bit disappointing to me because nowhere was it mentioned that 100% of the higher-than-expected inflation data this year is due to insurance – health care, tenant/homeowner and auto. If you want to know the spark behind the +22% year-over-year surge in auto insurance premiums, the poster child for this year’s inflation pick-up, have a look at “Drunken Driving Deaths Up, Arrests Fall” (WSJ).
Here's the thing. Auto insurance is not inflation per se but rather a shift in prices that will fade away just as the COVID 19-induced surge in everything auto-related did in 2021 and 2022 (remember what car rentals and used cars did back then?). Besides, insurance premiums act more as a de facto squeeze on real household purchasing power than anything else.
The Challenger job announcement data were released yesterday and contained some interesting information. While layoff announcements fell -3.3% on a year-over-year basis, that excitement was blunted by the simple fact that at 64,789, the number of pink slips was the third highest for any April in the post-global financial crisis (GFC) era (since 2010). Moreover, layoff announcements based on the macro environment – bankruptcy, closures, downturn, and economic conditions – collectively totaled 41,851. Not only that, but hiring announcements plunged -58% year-over-year to an 11-year low of 9,802 for April. The typical April back to 2010 sees hiring plans topping 67,000 (this April was -85% below the norm). All in all, the Challenger data was very consistent with the message from the Job Openings and Labor Turnover Survey (JOLTS) data earlier this week.
We have mixed messages coming out of the jobs market. The combination of the JOLTS, jobless claims and Challenger data show that layoffs remains at bay. But the JOLTS data also show that hiring rates and quit rates are both below pre-pandemic levels and that job openings have declined to four-year lows. This means that labor demand is cooling off dramatically and workers are becoming less confident. This in turn explains why the job-hopping craze has totally subsided.
Today’s employment data are key since Federal Reserve Chair Jerome Powell made it abundantly clear that any unexpected weakening in the labor market would prompt the Fed to start the rate-cutting process even if the disinflation momentum continues to stall. This is why the markets interpreted Wednesday’s comments from the Fed Chairman to be less hawkish than anticipated, even as the base case was that the central bank would now bide its time. Rate hikes are not on the table, only cuts, and it remains a matter of when and not if. Swaps markets are now thinking it will be the November 7 meeting, conveniently taking hold two days after the U.S. election.
The non-farm payroll consensus is at +240,000, a stable jobless rate of 3.8% and a +0.3% print on average hourly earnings. Note that not one of the 73 economists polled by Bloomberg is below +145,000 on today’s headline and nobody is north of +280,000, so the potential for a surprise in either direction is real.
Have a great weekend!
Economic Calendar
April 29 - May 3, 2024: The Week Ahead
Future Fed Expectations
Source: Bloomberg
| Select Probabilities based on the Futures | |
|---|---|
| Probability of Fed Funds rate CUT on May 1. 2024 | -2% |
| Probability of Fed Funds rate CUT on June 12, 2024 | -11% |
**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.