"Don't ask too many WHYs??? Believe that somethings will behave true to its form"
A Spate of U.S data released yesterday pointed to continued resilience of the U.S Economy.
The advance estimates of GDP grew 1.10% much below consensus of 2.00% but the market took comfort in the growth in the Personal Consumption Expenditure numbers. PCE component of the GDP rose 3.70% which was driven by a 6.50% growth in expenditure on goods and 2.3% growth in expenditure of services. The growth in PCE was offset by decline in private domestic residential and non residential investments.
The Q1 PCE prices rose 4.2% yoy and core PCE prices rose 4.90% yoy.
The Initial Jobless claims came in a 230K (prev 244.3K)for the w/e 22 April 23 and the continuing claims for the w/e 15 Apr 23 came in at 1.858M (prev 1.8679). The key takeaway from the report is that jobless claims data has not seen a sharp deterioration despite the fears of credit tightening post the banking crisis.
Market chatter moved to talk of stagflation. Stagflation is broadly defined as a period of high inflation, high unemployment and stagnant growth. We have high inflation and growth is moderating but employment is showing signs of strength. So may be it is a tad bit too early for the stagflation narrative to stronghold popular opinion.
Post the release of the data, we saw yields spike higher with 2Y touch a high of 4.11% and 10Y touched a high of 3.54%.
If you look at the US 2Y chart, the price has been confined in a wide range of 3.65% and 4.25%. While the 10Y has been confined to the 3.25% - 3.65% range. The interest rate markets are pricing in 55 bps of rate cuts. I suspect formation of a reversal H&S pattern. Be sware!!
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