Market 05/29: Money supply increases again - Economic data continues to improve

44 Billion Dollar Bonds No One Buys - FED Prints Money After Recession Fears

Auction of 44 billion USD 7Y bonds continues to fail due to reduced demand

Today's 7Y bond auction by the Treasury continues to show reduced demand as: average tail level + many investors demand higher yields + dealers have to participate more....
.... similar to the 2 auctions yesterday.
Hawkish tone in last week's FOMC Minutes has heavily impacted the market — as investors believe Fed will keep rates high longer.
GDP and PCE reports will be closely watched in the next 2 days.

Auction results details:

High Yield: 4.65% (market yield: 4.637% | previous session: 4.716%)
=> Tail : 1.3 bps
- Successful bid ratio at High Yield: 65.55% (previous session: 35.06%)
Bid-to-Cover: 2.43 (previous session: 2.48)
Competitive award components:
- Dealers: 17% (previous session: 13.9%)
- Indirect bidders: 66.88% (previous session 65.11%)

M2 money supply increases again: inflation will be harder to reduce

In April, US M2 money supply increased +0.59% Y/Y - first Y/Y increase since November 2022.

US banking sector earnings also increased 79.5% to 64.2 billion USD in Q1/2024.

Mainly due to not having to pay fees for bailing out bankrupt banks last year => banks receive additional liquidity from Fed!

US Treasury will start buyback program from today, will continue to increase money supply

Biden's previous debt forgivenesses make people continue to expect student debt forgiveness

People believe there is 39% chance of debt forgiveness in April

This confidence makes people continue spending, debt payments in May lowest since August 2023

The continued increase in money supply will only make inflation persistent (or even increase again)!

Economic data from Fed Richmond shows improvement

Fed Richmond Manufacturing Index reaches 0 (higher than previous estimates of -6 & -7).

New orders improved but still contracting
Employment activity is slowing down further!

Service sector surveys from both Fed Dallas and Richmond show improved May revenue index.

However, ISM PMI shows manufacturing activity in the previous April contracted (red line).

Japan: BOJ may raise interest rates / slow QE to protect JPY

Japanese Yen weakens sharply as GBP/JPY rises 0.1% to 200.63, highest since August 2008.

BOJ board member Seiji Adachi said:

BOJ may raise interest rates if JPY continues to depreciate excessively and significantly impacts inflation expectations
BOJ will reduce bond purchases (QE) in the future

China: People increase investment in other assets due to declining deposit interest rates

USD/CNY falls to 7.2487 - lowest since November as PBOC cuts benchmark interest rate to unseen level in 4 months.

People flock to investment assets as deposit rates fall: yield spread between government bonds and corporate bonds narrows.

China's largest cities have eased down payment and mortgage loan requirements, after the government rolls out support package for the real estate sector

China's government efforts to rescue the real estate market are expected not to contribute much to GDP growth if people don't spend money.

Crypto Market: BlackRock continues to dominate the Bitcoin ETF market

BlackRock's IBIT becomes the world's largest spot Bitcoin ETF

Mastercard reveals first pilot P2P transaction of Mastercard Crypto Credential, providing users with an alternative solution to send and receive digital assets.

PayPal expands its Stablecoin PYUSD to Solana Blockchain

Earnings update: Box, Abercrombie & Fitch

Box

Revenue: 265 million USD, +5% Y/Y
GAAP diluted EPS: 0.08 USD, higher than 0.02 USD last year
Gross profit: 206.4 million USD, equivalent to 78% of revenue.

Abercrombie & Fitch

Revenue: 1.0 billion USD, +22% Y/Y
- Americas: 820.1 million USD, +23% Y/Y
- EMEA: 164.8 million USD, +19% Y/Y
- APAC: 35.8 million USD, +10% Y/Y
Gross profit: 677 million USD, up from 510 million USD last year.
Diluted EPS: 2.14 USD, compared to 0.32 USD last year.