Financial Markets Take a Breather as FOMC Meeting Looms

US consumers aren’t ready to accept the recession yet. Retail sales data released today displayed a steady 0.5% rise last month, while updating April’s figure from the abysmal 0.2% decline to a 0.3% gain. The stronger than expected consumer spending data provided a much-needed confidence boost to a US economic outlook which has been battered over the past week by disappointing payroll and inflation reports. It also reduces the Fed officials’ urgency to cut rates at next week’s policy meeting. Probabilities of a cut by the FOMC next week currently reside near 21% as per Fed Funds futures.

Both equity and Treasury markets traded near flat in the final session of the week. The S&P 500 (-0.16%) and DJIA (-0.07%) finished with marginal losses, while the pet-friendly company Chewy saws its shares surge 64% in its IPO, closing near $36/share. Swap rates experienced a slight 1-2bps decline across the curve, as the 10-year US Treasury fell to a 20-month low of 2.08%. In FX markets, the US dollar gained a steady 0.45% against major currencies, boosted by the robust retail sales data.

Crude oil prices continued to see-saw as markets weigh the potential of decreased global demand vs. heightened geopolitical tensions. US representatives continued to disagree with their counterparts in Iran as to who is responsible for the recent attacks on two fuel tankers in the Gulf of Oman. Today, a surveillance video surfaced which US military officials claim shows an Iranian crew remove an unsuccessful mine from one of the tankers. Tehran maintained its innocence, even accusing the US and its allies of plotting the attack. WTI crude gained 0.44% today, settling down from rising more than 4% during yesterday’s session when the news first broke. However, crude finished the week lower as the global economic slowdown continues to weigh on market sentiment.