Treasury auctions have had a slight impact on US Equities (^GSPC, ^DJI, ^IXIC), according to data from Citi Global Markets. With the Conference Board Consumer Confidence Index rising for the month of May, Invesco Global Market Strategist Brian Levitt joins Catalysts to discuss Treasury auctions, consumer confidence, and the broader state of the market.
"This is a market that has been very focused on inflation, very focused on what the Federal Reserve is going to do, at least over short-term periods. So when you get a miss on inflation, meaning higher than expected, the markets start dealing with policy uncertainty. Again, you get some volatility and you get some drawdown. So if we're talking about the next five days, personal consumption expenditure should be front and center on investors' minds," Levitt tells Yahoo Finance.
For more expert insight and the latest market action, click here to watch this full episode of Catalysts.
This post was written by Nicholas Jacobino
Video Transcript
All right.
Well, Mattie, this week's Treasury auctions kicking off with two and five year notes and it's not just a bond traders who are watching the auction closely.
The S and P 500 has moved about 1% in either direction on auction days.
This is going back to some of the patterns that we've been looking at since 2022.
According to leave that out from cities, we're here to take a closer look at how this week's auctions could impact the broader equity market we wanna bring in Brian Levitt.
He's invest is a global market strategist here.
And Brian before we get to that, just your quick reaction to what we're getting on the data side of it when it comes to consumer confidence and exactly how the equity market you think is looking at some of these sentiment numbers.
It's not a surprise that the consumer is feeling well.
It's actually had been a little bit more of a surprise that the consumer had felt a bit challenged.
We have a historically low unemployment rate and the wealth effects of investing in the market continue to go up.
So it shouldn't be a major surprise that consumers are feeling well, I guess, uh, still high cost of living and that's likely with us now, but the rate of change has improved.
So consumers hanging in there, which is, um, should be good news for the markets.
I mean, again, a, a better growth backdrop is, is certainly, is certainly better for markets than a weaker one.
And stocks here are wavering just a little bit by not looking like a major reaction at least on my end from these latest numbers here.
But I am curious from your perspective, what do you think will be the single biggest catalyst in this final week of trading for the month coming off of five weeks of high, at least for the S and P here.
Yeah, you mentioned it.
It's the personal consumption expenditure report on Friday.
I mean, this is a market that has been very focused on inflation, very focused on what the Federal Reserve is gonna do at least over short term periods.
So when you get a miss on inflation meaning higher than expected, um the markets start dealing with policy uncertainty again, you get some and you get some drawdown.
So if we're talking about the next five days, you have personal consumption expenditure should be front and center on investors' minds, Brian, what do you think the likely move is going to be if that report comes in at least showing that the trend line has continued to improve.
The FED has made some progress in taming inflation.
How much has that already been priced into the market at this point?
Well, I mean, we've, we've priced in some good results.
Um, but I still think the market would be very enthused by it.
Um, you know, look, the, the market has been driven at least over the last 12 months by a handful of names.
And that's broadened out a little bit recently.
But what will start to happen as uh inflation gets firmer into the fed's comfort zone, at least on the P CE and the expectations that were either on hold indefinitely or may be able to start slowly normalizing the yield curve that's gonna help broaden out market participation.
So there's many names trading at pretty reasonable valuations that are waiting for uh perhaps a lower rate environment or a a normal yield curve environment.
Um to be the catalyst to unlock some of that value, Brian, I'm interested in your take on what happened with PM I and in video here because we saw that in video, obviously a huge beat but PM I data continue to put some pressure on the market.
Do you think that the PC data could have that same market dynamic?
And what does that tell you just about what's driving the market right now and the importance of economic data right now?
Yeah, it is a very macro environment because we were at a high inflation environment and you know, the market sold off 25% in 2022 expecting AAA mild recession.
That hasn't happened.
So as the market had, as the economy has remained relatively stable and inflation has come down, that's been a good backdrop for risk assets.
Peak inflation is almost always a good backdrop for risk assets.
Now we're looking to stick um either no landing, I guess that's not sticking.
We either have no landing or we stick the proverbial soft landing.
So things like PM I Purchasing Manager index and the personal consumption expenditure are front and center because there's signs they're indicators to suggest uh whether the economy is heading in the wrong direction or whether inflation is heading in the wrong direction right now.
Um a little bit of a mixed picture on the economic side but still largely resilient economy with some pickup and growth overseas.
Um and inflation seems to be at least on the fed's preferred measure in their comfort zone.
So it's a good backdrop for risk assets, but that certainly could be disrupted in the short term by uh a bad data point here or there on inflation or growth.
And Brian to the point, it brings me to something I read from Goldman's note out this morning, they were talking about how soft data is under performing hard data and they were saying that looking ahead to ISM manufacturing, looking ahead to ISM services all consistent with near near zero real GDP growth.
My question to you is, is that at all worrisome or what potentially that signals then for the markets at this point?
Yeah.
I mean, it's, um, it, it's certainly something to watch.
I mean, it, it's an economy that's not gonna, you know, stay at the levels.
It's been forever.
And so things are all we are expecting to monitor and survey data tends to do a good job of capturing it.
The good news is as the US is, is perhaps moderating a bit.
Other parts of the world are picking up China Europe, the UK.
So in general, global growth remains fairly stable and it's a market that's enthused.
I mean, it's not a market that's telling us growth is gonna deteriorate meaningfully, the market tends to lead the economy, not vice versa.
So, you know, the market is telling us that that growth is going to to hang in there.
But, but yeah, I mean, the the risk Shana is that, you know, we're, we're sitting here after the most significant ray pipes that we've seen with the fed on hold indefinitely, waiting for the lag effects of policy tightening.
Perhaps they should be starting to get out in front of that a bit.
Um But certainly they're gonna remain data dependent at this point.
So I do want to go back to the Treasury auctions that we came to on Brian because I know that you mentioned that they're not much to write home about but given that we don't have a clear central thesis from the Fed.
I feel like we are all grasping at straws to get a central thesis here.
What are you going to be watching at auctions to indicate where we are at with demand and what will that tell you moving forward?
Yeah, I mean, we're just looking to make sure that these things pass without incident, that there's no significant um, disruption that there's, there's more than enough demand to match the supply without a meaningful move in rates.
I don't spend a ton of time um stressing about treasury auctions because if you look at how the treasury markets have been behaving, they're not trading on um any type of fundamental cons concern for the US government, they're trading on growth and inflation expectations.
And so, you know, rates are in line with where investors believe nominal activity will be or should be.
And so these options, yeah, they may cause some hiccups if we don't see the type of demand we want.
But again, there's very little to suggest that treasury yields are trading um on anything but nominal growth expectations and where the fed is likely to be really good point.
Brian, thank you so much for joining us and chatting through that breaking news with us at the top.
We appreciate it.
