Economy

Banking turmoil adds pressure to Dow

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Markets generally retreated on Thursday as investors felt uncomfortable with the development in the banking sector. Some good news from the Purchasing Price Index helped cushion the loss as traders increased the odds of a rate hike pause in June FOMC. It is expected that the banking woes will keep a lid on leading, and cause a tightening effect on the general economy, as Uncle Powell had laid out in his prior FOMC conferences.

Political deadlock on the debt ceiling has a naysayer.

JPM CEO Jamie Dimon warned the financial community that the prolonged unresolved debt ceiling issue could unleash animal spirit in the equity market. In his words, it is “potentially catastrophic” as we are nearing a government default.

The Treasury market is signalling stress. We are seeing the price of one-month Treasury dropping, and the yield jumped to over 5.4% when it was just a low of 3.3% during late April. While we have seen some stabilisation for the past few days, until an agreement is reached, the market can experience jitter again.

Although there are mounting risks to the market funds, some investors are counting on the Fed to advance into the game should the financial condition worsen with flooding of liquidity to avoid a disaster bubble from forming.

Still, this is a delicate evolving situation. After all, the Fed is still tied to solving the inflation problem, and they would hope to avoid adding more cash into the system. So, it could be a fat hope for consolation.

Producer Prices are a beacon of light for the economy

With the release of April’s PPI data, we are heartened by the slowing advancement in prices which could boost the odds of a Fed’s pause. On a monthly basis, we see the PPI climbing 0.2%, which is lower than the expected 03%. Looking at the annual basis, prices increased 2.3%, the slowest gain ever since Jan 2023.

Progress is clearly seen in the battle to ease inflation. Considering a softer CPI, it is good news for the Fed as more progress is surfacing in economic data, pointing to a softer general price increase.

Looking at the odds of a pause in June FOMC, there is about a 99% chance, that traders are pricing in for a pause, which would keep the Fed’s fund rate at the range of 5% to 5.25%.

Nonetheless, we are mindful that some sectors are experiencing a really sticky situation, just like superglue. The services component accounts for about 80% of the increase in April’s monthly inflation.

Let’s hope for further easing in the remaining months ahead.

What’s on the menu today?

8.30 pm : Import Price Index (MoM)
10.00 pm : Michigan Consumer Sentiment (May), Michigan Consumer Expectations (May)

It is 12 May, Friday, 9.10 am in Singapore and 9.10 pm in New York. It has been a generally good week thus far for the equity market, and let’s hope for a good closing to the week.

I hope you have a splendid hour at work and school as you enjoy a tasty breakfast!

See you tonight for our equity market update.