Rabobank’s Molly Schwartz reports that US Treasury yields remained mostly flat with a slight bull-steepening bias, while the US Dollar Index (DXY) was little changed at 99.19 [1]. The US Overnight Index Swap (OIS) curve continues to price in a high probability of further Federal Reserve rate hikes, with around 70% chance of a hike by year-end and a full hike anticipated by March of the following year [1].
Despite the market's expectations for additional tightening, Schwartz highlights that the US consumer outlook remains weak. The US Conference Board consumer confidence index edged up slightly from 92.8 to 93.1, but still resides in negative territory [1]. Schwartz notes that while consumer confidence has not been a reliable indicator of economic performance recently, the combination of poor consumer sentiment and a challenging inflation outlook could pose risks, particularly for lower-income households [1].
Investors are closely watching the upcoming headline and core Personal Consumption Expenditures (PCE) price data for April, scheduled for release on Thursday. The data is expected to show headline PCE inflation at 3.8% year-over-year and core PCE at 3.3% year-over-year [1].
No immediate market reaction was noted in the article, but the focus remains on the forthcoming inflation data and its potential influence on Federal Reserve policy expectations [1].
CONCLUSION
The US Dollar and Treasury yields showed little movement as markets await key inflation data, with rate hike expectations remaining elevated. Weak consumer confidence persists, raising concerns about the economic outlook, especially for lower-income groups. The upcoming PCE data is likely to be a significant driver for market sentiment and policy direction.