Daily Market Color

First Half Ends with Positive Day in Equities


Spending Still Slow to Grow   

The Commerce Department’s report on personal income and consumer spending for May headlined today’s economic data reporting.  Detailed in the report, personal income rose 0.4% last month (meeting estimates), while consumer spending, which accounts for 70 percent of US economic activity, underperformed (0.2% realized vs 0.4% estimated).  Adding to the disappointment, some market pundits held the opinion that spending would increase in the second quarter as the tax cuts and other wage gains begin to accrue, leading to increase disposable income and spending.  Also included in today’s report details, the savings rate rose to 3.2% from 3.1% in the prior period.  With the FOMC mindful of its 2% inflation target, today’s Personal Consumption Expenditures Price Index  (PCE) release gave the committee a level that exceeds the target measure of inflation (2.3%) to discuss.  The PCE YoY has now hit or exceeded the FOMC’s target for the past three consecutive months.  While these are strong numbers, the lack of increased spending will likely give the FOMC pause when considering moving off the current gradual pace of rate hikes.   



Kudlow Comments on Fed and Deficit

Director of the National Economic Council, Larry Kudlow, spoke on two key issues today.  First Kudlow commented on his desire for the FOMC to continue it’s gradual pace of rate hikes.  “My hope is that Fed, under it’s new management, understands that more people working and faster economic growth do not cause inflation,” Kudlow said in a break from the long tradition of members of the administration remaining silent about all matters Fed related so as to allow the central bank to operate independently.  “My hope is that they understand that and they will move very slowly” he further commented.

Kudlow also spoke about the deficit declining when in fact it has been increasing due to the tax overhaul and increased spending. “As the economy gears up, more people working, better jobs and careers, those revenues come rolling in and the deficit, which was one of the other criticisms, is coming down and it’s coming down rapidly,” Kudlow said.  However, the Congressional Budgetary Office’s (CBO) April report stated that “Federal budget deficits are set to increase rapidly this year and over the next four years… then remain largely stable relative to the size of the economy — but at a very high level by historical standards — over the rest of the projection period.”  In fact, according to the CBO, the deficit through May of this year is $97 billion greater than it was through May of 2017.



Equity Markets Post Limited Gains

Equity markets ended the final day of the quarter in positive territory.  All three major indices posted gains on the day with the DJIA leading the way (+0.23%) and the NASDAQ and S&P 500 posting more modest gains of (+0.09%) and (+0.08%).   Nike had a strong day as shares gained 11% after upbeat quarterly earnings.   US Treasurys and Swaps sold off on the day with rates up 1-3 bps across the curve.  The 10-year treasury note closed the week at a yield of 2.86%, roughly 3bps lower than where it closed last week.  WTI crude futures settled 1% higher to $74.15/barrel, the highest closing level since November of 2014.  In Foreign Exchange Markets the USD Dollar (USD) fell 0.2% against both the Euro (EUR) and British Pound (GBP).




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