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Bob Carey
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  US Economy and Credit Markets Ended May 18, 2018
Posted Under: Weekly Market Commentary

 
Treasury prices dropped moderately over the course of the week on strong economic data and speculation that both the Federal Reserve and European Central Bank may raise interest rates more quickly than previously expected. On Tuesday, April Advance Retail Sales were solid while March sales figures were revised to 0.8%, and May Empire Manufacturing was higher than expected, causing a risk-on environment which led to a significant drop in Treasury prices. It was also reported on Tuesday that the U.S. and China were very far apart on trade negotiations, leading to speculation of a trade war that could push both prices and inflation higher and Treasury prices lower. On Monday, a member of the ECB's governing council said that the end-date for asset purchases was approaching and that the ECB would need to give guidance on rate increases, which heightened expectations of more rapid rate increases from the ECB. Somewhat mitigating the drop in Treasury prices was weak inflation data that led investors to speculate that a more conservative approach to raising rates would be necessary. Altogether, the market-implied probability of future rate increases remained steady. On Friday, Treasury prices rebounded as the fears of geopolitical concerns with trade negotiations with China, the report that a NAFTA agreement was not close, and North Korea threatening to cancel talks led investors to seek the perceived safety of Treasuries. Major economic reports (related consensus forecasts, prior data) for the upcoming week include: Wednesday: May 18 MBA Mortgage Applications (N/A, -2.7%), May Preliminary Markit US Manufacturing PMI (56.5, 56.5), April New Home Sales (678k, 694k); Thursday: May 19 Initial Jobless Claims (220k, 222k), April Existing Home Sales (5.55m, 5.60m); Friday: April Preliminary Durable Goods Orders (-1.4%, 2.6%), May Final U. of Mich. Sentiment (98.8, 98.8).
Posted on Monday, May 21, 2018 @ 8:13 AM • Post Link Share: 
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