U.S Indices rallied on Tuesday on the return from the long weekend with markets reacting to US President Trump delaying his 50% tariff threat to the EU to 9th July from 1st June, allowing more time for negotiations. The market also caught a bid on the sharp rebound in consumer confidence. Sectors rallied, with Consumer Discretionary, Tech and Communication outperforming (up over 2-3%), while Energy, Utilities and Consumer Staples lagged (but still with gains of 0.7-0.9%). Meanwhile, US Treasury yields were lower across maturities with the curve bull flattening. The downside in long-end yields largely tracked that of JGBs on reports that Japan’s MoF is looking to cut super-long-end issuance, while the Trump/EU trade relief also likely helped. The Dollar outperformed on the reduced trade tensions while the Japanese Yen lagged on lower JGB yields and the rally in equities. Oil prices settled lower ahead of OPEC+ JMMC, although the meeting of the eight OPEC+ countries conducting voluntary cuts will take place on Saturday. Market focus will be on the Saturday meeting, assuming no policy decision is front-run and announced at the Wednesday meeting. Data out of the US saw Durable Goods tumble, but not as much as forecast, albeit it was primarily led by volatile aircraft orders after the surge in the prior month. Meanwhile, Consumer Confidence saw a notable recovery, well above analyst expectations. Fed speak saw Kashkari note that there is a healthy debate on the FOMC over whether to look through the inflationary impact of new tariffs. Barkin toed the usual wait-and-see approach line. US Consumer Confidence rose to 98.0 from 86.0, above the expected 87.0 and even above the top end of the forecast range. The Present Situation Index and Expectations rose to 135.9 (prev. 133.5) and 72.8 (prev. 54.4), respectively, while 12 month inflation expectations ticked lower to 6.5% from 7.0%. Note, that the cutoff date for preliminary results was May 19th – About half of the responses were collected after the May 12th announcement of a pause on some tariffs on imports from China. Consumers saying jobs “plentiful” and “hard to get” both increased. On the responses, Stephanie Guichard, Senior Economist at The Conference Board noted the rebound was already visible before the May 12th US-China trade deal but gained momentum afterwards. Meanwhile, she added consumers were less pessimistic about business conditions and job availability over the next six months and regained optimism about future income prospects. Consumers’ assessments of the present situation also improved. However, consumers were more positive about current business conditions than last month, and their appraisal of current job availability weakened for the fifth consecutive month. Note, that May’s rebound in confidence was broad-based across all age groups and all income groups. It was also shared across all political affiliations. Durable Goods declined by 6.3% in April, beating the expected decline of 7.8%, but falling notably from the prior rise of 7.6%. Ex-defense fell 7.5%, vs the prior 9.0% upside. Ex-transport rose by 0.2%, vs the prior -0.2%. Nondefense Capital Goods Ex-aircraft fell 1.3%, vs the prior +0.3%. The tamer figures in ex-transport show that the fall in the headline was primarily due to a fall in the volatile aircraft orders from the strong March report. However, Pantheon Macroeconomics does highlight that “other headline numbers from this report provide further indication that underlying investment demand is slowing significantly in the wake of the tariff shock.” The consultancy highlights that the 0.2% ex-transport increase is equivalent to a 0.4% decline in real terms, given the 0.6% jump in PPI capital goods last month. It also adds that the 1.3% drop in Nondefense Capital Goods ex-aircraft is consistent with a near 2% decline in real terms. Elsewhere within the report, Pantheon Macroeconomics highlights the Core Capital goods shipments fell by 0.1%, but is consistent with a 0.7% drop in real terms. “That tentatively suggests a moderate decline in equipment investment in Q2, but one month’s data are not definitive.” Elsewhere, Oil fell 1% while Gold was also lower ending Tuesday’s session with a loss of 1.14%.
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