Economic and Market Overview
June 2024
Large cap equities powered ahead and Treasuries rallied as inflation data improved for the second consecutive month and the Fed indicated fewer cuts in 2024. Credit spreads widened on the back of a busy month in the primary market.
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Equity indices had a mixed month as the S&P 500 managed a 3.6% return, while its equally-weighted version and the Russell 2000 declined. Despite a late month selloff, Treasury yields still managed to finish lower across the curve for the second straight month as market participants welcomed encouraging inflation data. Credit spreads broke out of what had been a very tight range since mid-March, as the average OAS on the Bloomberg Intermediate and Long Credit Indices finished 8 and 10 bps wider, respectively. As for the primary market, J.P. Morgan reported $104 billion in total IG issuance for the month, roughly 18% more than the average of recent Junes. That brought the YTD total to $870 billion, though the pace should slow into the summer. WTI futures rebounded from their worst month of the year, as the active contract gained nearly 6%. The U.S. Dollar also rebounded from a tough May, as the greenback gained versus the pound, euro, yen and loonie.
Economic Data
Nonfarm payrolls rose at a 272,000 pace in May, which was 92,000 over expectations, though the prior two months were revised down by a net 15,000. The unemployment rate, on the other hand, once again ticked up by a tenth of a percent to 4.0% and NISA estimates that the difference in the level of employment between the two measures is the highest it has been since 1999. JOLTS data saw openings fall below their pre-pandemic high. Looking ahead, economists expect a 190,000 increase in NFP, with no change to the unemployment rate, when June data are released on July 5. Consumer spending weakened in May, as retail sales releases missed across the board, and April’s results were revised lower. Likewise, in June both major consumer sentiment indices declined from their May levels. Manufacturing and services sentiment readings were mixed, but stronger than expected on balance, as were hard data. Housing data were weak overall, as only existing home sales topped forecasts and still declined MoM. The third release of Q1 GDP was revised up by 0.1%, to 1.4%, though personal consumption was revised 0.5% lower, to 1.5%. Q2 GDP estimates are around 2.0%.
Inflation
Inflation data improved for a second consecutive month in May. Both Core CPI and Core PCE decelerated in MoM terms, to 0.163% and 0.083%, respectively. These were the slowest monthly paces in more than two years. In both measures, the deceleration was evident across goods and non-housing services components. Though the 3m and 6m annualized rates of inflation remain well above target, a few more prints like May could allow the Fed to conclude that the elevated Q1 inflation data were merely a brief aberration from the disinflationary trend. Breakeven inflation rates declined by 7-10 bps across the three benchmark tenors of 5-year, 10-year, and 30-year.
Monetary Policy
The FOMC left the policy rate unchanged at their June 12 meeting, as expected. The SEP Median projected just one rate cut in 2024, down from three in the March projection. This was more hawkish than expected, but Powell downplayed the significance of the dots given that many were submitted before the cold May CPI report was released. Powell mostly repeated his message from prior months, highlighting that a data-dependent FOMC still needs more evidence to gain confidence that inflation is back on track towards target. He did, however, judge that the labor market is back to its pre-pandemic status of “relatively tight but not overheated.” And he sent the dovish signal that “we’re watching closely for signs of economic weakness.” Subsequent economic data and Fedspeak seemed to confirm those concerns, and by the end of the month markets were pricing nearly two full rate cuts this year.
Sources: Bloomberg Index Services Ltd., Bloomberg.
This overview is for informational purposes only. The information has been obtained from sources considered to be reliable, but the accuracy and completeness are not guaranteed. There is no assurance that any economic trends mentioned will continue or that any forecasts will occur. Economic data is as of the dates noted.
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