Market 05/28: 139 billion USD bond auction not very promising

PODCAST: Is the Economy Heading to Crisis? - Discussion on Inflation, Interest Rates, and Recession Risk

In today's podcast, Steve and Linh Hà discuss:

• Current inflation situation and the FED's direction?

• Where does the risk of economic crisis come from?

• How about the economic recession in China and Europe?

2Y and 5Y Treasury Note Auctions: demand drops sharply

69 billion USD 2Y T-Note auction not promising as foreign demand decreases

• High Yield: 4.917% (market yield: 4.907% | previous session: 4.898%)

  => Tail : 1bps

  • High Yield acceptance ratio: 78.98% (previous session: 77.9%)

• Bid-to-Cover: 2.41 (previous: 2.66)

• Competitive award components:

  • Dealers: 16.57% (previous: 15.08%)

  • Foreign investors: 57.91% (previous 66.22%)

70 billion USD 5Y bond auction also not promising due to decreased domestic demand

• High Yield: 4.553% (market yield: 4.54% | previous session: 4.659%)

  => Tail : 1.3bps

  • High Yield acceptance ratio: 96.34% (previous: 1.93%)

• Bid-to-Cover: 2.41 (previous: 2.39)

Competitive award components:

• Dealers: 19.52% (previous: 15.02%) => increased to offset declining domestic demand

• Foreign investors: 65.04% (previous 65.74%)

Fed officials' statements: Bowman, Mester, Kashkari

1. Fed Board member: Bowman

• Supports earlier rate hikes

• Supports waiting longer before slowing QT pace

2. Cleveland Fed President: Mester

• Increasingly concise policy statements could spell trouble for investors

• Proposes 2 changes in how the Fed communicates with the public:

  • Add more explanations to the post-meeting policy statement

  • Quarterly summary needs to describe Fed forecasts in more detail

3. Minneapolis Fed President Kashkari

• Does not rule out possibility of Fed rate hike but probability quite low

• Neutral interest rate could rise in the short term

• Fed may keep current rates for some time ahead, unclear on timing of cuts

US consumer confidence in May unexpectedly rises: bullish for stock market

Consumer confidence index rises to 102, higher than estimates of 96 & 97.5 previous month

• Confidence in current situation rises to 143.1 vs 140.6 previous

• Consumer future expectations rise to 74.6 from 68.8 previous

Consumers optimistic about stocks as 48.2% expect stock prices to rise next year - 3rd highest rate in history

Views on labor market remain positive:

• Number saying hard to find jobs remains near historic lows - but showing signs of gradual increase.

Confidence of households earning 100,000-124,999 USD (middle-high income) rises most since Sep 2020

But confidence of low-income households (<15,000 USD) drops to lowest since Feb 2021

May confidence of consumers <35 years old much higher than >55 age group

US home prices in March at record high - despite high rates

Case Shiller home price index for 20 largest US cities rises +7.38% Y/Y - strongest since Oct 2022

• National home price index +6.49% Y/Y vs +6.53% previous

US home prices hit new record high in March, as median new home prices begin to fall

Case Shiller data has large lag as rates remain above 7% but home prices still surge

68% of US adults believe home prices will rise next year, up from 56% last year:

• high home price expectations from buyers also contribute to keeping home prices high!

March home prices hit all-time high, +6% Y/Y, affordability fluctuating around record low

Renting is currently cheaper than buying:

• Homebuyers spend 35% of income on mortgage payments, while renters pay only 29% of income monthly

Crypto Market: Hong Kong may allow staking in spot Ethereum ETF funds

ETH balances on exchanges hit 6-year low

Unlike the US, Hong Kong's Securities and Futures Commission (SFC) may allow staking of ETH held in local spot Ethereum ETF funds.

Qualified crypto exchange-traded products approved for trading in the United Kingdom

• WisdomTree is the first company to receive listing in London

Economic events for the week of 05/27 - 06/02

1. Memorial Day, markets closed - Monday

2. Conference Board Consumer Confidence - Tuesday

3. GDP Q1 2024 - Thursday

4. April PCE inflation - Friday

5. Chicago PMI - Friday

6. 10 Fed speeches this week

• Corporate earnings calendar:

Other news

1. Dallas Fed Manufacturing Index for May shows new orders, workweek, and employment all declining

2. Apple's sales to China in April up +52% Y/Y but iPhone market share in this market declines

3. US Treasury to start buyback program from 05/29, ~$2B to flow into economy weekly

   

4. Credit card delinquency rate continues to rise

5. New Start-up xAI Elon Musk's valued at $24B after successfully raising $6B from investors

6. T-Mobile acquires majority of US Cellular for $4.4B

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