Consumer Sentiment Falls to a 2024 Low

Rates fall on weak consumer sentiment. The swap curve flattened today as the short end was little changed while the long end fell 2-5bps. University of Michigan consumer sentiment fell to a seven-month low and was below estimates, largely driving the rate decline. Meanwhile, University of Michigan inflation expectation data was 0.1% higher than expected for both short and long-term outlooks. Rates closed 20-25bps lower on the week.

Inflation week provides a path toward 2024 rate cuts. This week’s consumer (CPI) and producer (PPI) price inflation figures were lower than expected, making 2024 rate cuts more likely. Core CPI dropped to a 3-year low and slowed across all measures from April, a significant sign of progress after data this year has shown robust inflationary pressures. Fed Funds futures currently have ~50bps of accommodation priced in, despite the Fed’s updated Dot Plot projection that showed a median of 25bps.

Risk-off moves continue on French political turmoil. French equities lost a total of ~$210bn in value this week while the spread between French and German bond yields has seen its biggest weekly jump on record after French President Macron called snap elections. Following the week’s developments, a group led by Barclays European equity strategist Emmanuel Cau wrote, “We struggle to see a compelling reason to overweight continental Europe, even while it has become more consensus [with respect to equity performance] year-to-date.” Anonymous sources reported, however, that ECB officials are not alarmed by the recent French market turbulence, and an ECB spokesperson declined to comment on the events.