Last Week's Close
E-mini S&P 500 (June): Settled at 4119.50, up 30.50 on Friday and 109.50 on the week
E-mini Nasdaq-100 (June): Settled at 13,829.50, up 81.75 on Friday and 513.50 on the week
The S&P, Nasdaq, and Dow held ground ahead of the opening bell and sat poised to extend their record run. Fed Chair Jerome Powell talked up the economy and the Fed’s accommodative backstop last night on CBS’s 60 Minutes.
Chair Powell’s remarks highlighted exactly what we’ve been speaking about; after March’s Nonfarm Payroll report, the economy is still down 8 million jobs from the pandemic. As we wrote, assuming the next 4 months of reopening and summer hiring bring back 4 million jobs, the economy is still short 4 million, and those jobs represent the people who have been hit hardest by the pandemic.
In dovish fashion, last night’s story interviewed people who were already struggling to make ends meet within the economy, even prior to Covid-19. Ultimately, we find the story supportive, as it gives credence to the Fed’s patience with its unprecedented policy measures and rhetoric of symmetrical inflation targeting. Coincidentally, the story comes ahead of tomorrow’s pivotal CPI read and a deluge of Treasuries hitting the market.
Today, the U.S. Treasury will auction $58 billion 3-Year Notes and $38 billion 10-Years. Tomorrow follows with $24 billion 30-Year Bonds. The added supply, if not met equally by demand, will suppress prices, allowing for rates to continue their rise. Tomorrow’s Core CPI read, if hotter than the expected 1.5%, would bring a tailwind to such a rise.
At the same time, foreign buyers, the largest group behind the Fed, could step up to meet the Treasury demand, given the spread between U.S. and German 10’s is at pre-pandemic levels. Additionally, inflation could be ho-hum since the base data didn’t really fall until April; this would be a complete 180 from what talking heads and “FinTwit analysts” are calling for. In the end, the latter makes sense.
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