U.S. Indices closed mixed on Tuesday with outperformance in the NASDAQ 100 while Russell underperformed while both the S&P and Dow were roughly flat. Sectors were also mixed with outperformance in Communication, Consumer Discretionary and Energy, while Utilities, Health Care, Real Estate and Consumer Staples heavily underperformed (all defensive sectors). T-Notes bull steepened with the curve catching a bid after soft consumer confidence data, albeit inflation expectations continued to rise. The Dollar was flat with outperformance in the Japanese Yen with lower US Treasury yields helping the currency. Aside from the Consumer Confidence data, the Richmond Fed also disappointed. Fed’s Kugler spoke, noting that current Fed policy is still restrictive and judges that policy is well positioned, largely echoing Fed Chair Powell. US President Trump spoke in late trade, with the President noting he has the April 2nd tariffs set, and that he thinks he has been fair on countries who abused the US for many decades. Crude prices settled flat with the soft US data and positive rhetoric from Russia/Ukraine weighing on prices from earlier highs. On the latter, Russia and Ukraine have agreed to a maritime ceasefire and also a ceasefire on energy facilities. U.S. Consumer Confidence fell more than expected in March to 92.9 (exp. 94.0) from the upwardly revised 100.1, marking the fourth consecutive month of deteriorating consumer confidence, hitting a four-year low. For the Present Situation index, it fell 3.6 points to 134.5 as current business conditions were significantly less positive in March; 16.6% said business conditions were “bad” (prev. 14.8%) while 17.7% said “good” (prev. 19.1%). The Expectations Index dropped 9.6 points to 65.2, its lowest level in 12 years, extending its decline below the 80 threshold that typically signals a recession ahead. Driving the Expectations Index lower, worsening occurred in consumers’ outlook for business conditions and the labour market, as well as growing pessimism on future income. Out of the five index components, only the consumers’ assessment of present labour market conditions improved, as 15.7% of consumers said jobs “were hard to get” (prev. 16%) and 33.6% said jobs were plentiful, unchanged from February. Pantheon Macroeconomics noted the resulting net balance saying jobs are plentiful is consistent with a first estimate of private payroll growth of around 125K in March and a slight upside risk to the 4.1% unemployment rate. Meanwhile, Consumers’ perceived likelihood of a US recession over the next 12 months held steady in March. Average 12-month inflation expectations rose again to 6.2% (prev. 5.8%) as consumers remained concerned about high prices for key household staples like eggs and the impact of tariffs. Given the proportion of people expecting fewer jobs to be available in 12 months’ time exceeded those expecting more jobs the joint-largest gap since March 2013, PM added, “the chances that a burst of tariff-driven goods inflation feeds through to CPI services inflation are low”. The Richmond Fed Composite Manufacturing Index fell to -4 in March from 6 in February and was led by a significant decline in the shipments index to -7 from 12. Of its two other component indices, new orders and employment fell to -4 (prev. 0) and -1 (prev. 9), respectively. Elsewhere in the report, local business conditions tumbled to -13 (prev. -5), while the index for future local business conditions considerably dropped to -22 from 2. Ahead, the future indices for shipments and new orders both dipped, to 7 (prev. 13) and 6 (prev. 8). On the inflation footing, prices paid and received both distinctly increased, as did firm’s expectations for the next 12 months. New Home Sales rose by 1.8% in February to 676k, a touch beneath the 679k forecast but it is an improvement after falling 6.9% in January. The prior month was revised up to 664k from 657k. The report showed the median sales price was USD 414,500 with an average sales price of USD 487,100. The estimate of new houses for sale at the end of Feb was 500k, representing a supply of 8.9 months at the current sales rate. Pantheon Macroeconomics notes “Some of the uptick in sales likely reflects more favorable weather, given that January was the coldest since 1988.” Pantheon also reminds us the data is too volatile, too heavily revised, and comes with too wide a margin error to take a single month’s numbers seriously. The report notes that the 1.8% rise comes with a 90% confidence interval of 18.6%. Looking ahead, Pantheon highlights that “Mortgage applications remain weak, while leading indicators such as the current sales index of the NAHB survey, and components of the Michigan and Conference Board consumer surveys suggest demand is waning.” Fed Governor Kugler took a very neutral approach to her speech. She said she sees current Fed policy as still restrictive and judges that policy is well positioned. She echoed Fed Chair Powell’s forecasts that 12-month PCE was 2.5% in February, and also noted that progress on bringing inflation to target has slowed since last summer. She said the return of positive goods inflation is ‘unhelpful’ as it had helped keep a lid on total inflation and inflation expectations. Kugler acknowledged the surveys show consumers are expecting further increases in prices in the near term, with uncertainty tied to trade policy. She is paying close attention to the acceleration of price increases and higher inflation expectations. She noted the latest economic data for early this year have shown some signs of softness (referencing the weak January retail sales, but said it was not entirely unexpected after a strong December print, some bad weather and difficulties in the seasonal adjustment of the data, while retail sales were more mixed in February). She said the labour market appears to be stable through February, noting the unemployment rate is low. Elsewhere, Oil closed 0.42% higher while Gold ended Tuesday’s session with a small 0.3% gain.
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