Risk Assets Buck Superstition, End Week on a Positive Note

Nervy week ends with higher rates, bounce-back in equities. A choppy week ended with Treasury yields and swap rates higher across the curve, once again following risk assets as nearly every developed market saw equities bounce back. The S&P 500 and Nasdaq ended the day 2.4% and 3.8% higher, though both remain firmly in negative territory to start the year. 4 ½ months in, markets have done nothing but surprise wall street analysts, the 10-year Treasury yield in particular sits nearly 75 bps above the median 2022 analyst forecast:

Cleveland Fed President Loretta Mester believes inflation may not have reached its peak yet. Inflation levels must decline for the foreseeable future for the Fed to conclude it has peaked. Mester believes the war in Ukraine and China’s strict COVID regulations could continue to impact supply chains and pose risks to inflation. Mester added, “If by the September (Fed) meeting, the monthly readings on inflation provide compelling evidence that inflation is moving down, then the pace of rate increases could slow, but if inflation has failed to moderate, then a faster pace of rate increases may be necessary.”

Consumer sentiment declines to an 11-year low. The University of Michigan’s consumer sentiment index fell to 59.1 in April from 65.2 the month prior, well below the forecasted 64.0. The report cited high inflation levels and the reduction of pandemic savings as the main factors contributing to the drop in sentiment. The report described the decline as “broad-based and visible across income, age, education, geography and political affiliation.” Despite the dark outlook, consumers’ inflation expectations for the next 5 years remained unchanged at 3%.