Markets to Watch This Week: Is US Consumer Credit Slowing?

We standardise WoW price changes across different markets to allow for cross-market comparisons.

Market Moves Over the Past Week

Euro area inflation surprised to the downside last Thursday (1 June). The flash estimate for CPI came in at 6.1% YoY versus 6.3% expected, with core also surprising to the downside at 5.3% versus 5.5% expected. In response, yields across the eurozone dropped, with German 2Y Schatz falling by almost 14bps on the week (Chart 3).

Sticking with eurozone inflation, the ECB’s selling price expectations survey came in far lower than expected on Wednesday at 6.6 in May 2023. This was down from a revised 11.6 the month before and compared with the market consensus of 5.7. It was the lowest reading since November 2020. The decline in energy prices and broader commodities is likely helping here, but we believe core inflation will remain sticky in the coming months, forcing the ECB into further rate hikes.  

NFP showed 339,000 jobs were added in May. US jobs data surprised to the upside on the headline while the details were much noisier. Nominal wages did not rise (aggregate average hourly earnings), while unemployment increased by 20bps as the household survey fell by 310,000. Dominique does not think this report shifts the balance in voting preferences for June, with the Fed most likely choosing to skip at the upcoming FOMC. In particular, she was surprised by Governor Philip Jefferson’s speech which leaned dovish from previously hawkish despite strong inflation and demand data.

Strong Canadian GDP boosts the Loonie. A stronger-than-expected GDP release has likely wrongfooted the Bank of Canada ahead of next week’s June meeting. Adding this to the other data, we continue to expect a pause on Wednesday. Last week, CAD/USD was the largest mover (by std dev.) out of the markets we track. Higher oil prices towards the backend helped, but dollar weakness was consistent across the board (Charts 1 and 2).

Market breadth improved in the US last week with the equal-weight S&P 500 outperforming the broader index by 0.1% after underperforming by more than 3% over May. The equal weight index rose by almost 2% on the week, signalling the equity market’s internals could be improving in the short run. Also, factor performance reversed as value began to outperform growth while small caps regained some losses against large-cap stocks.

What to Watch

Is consumer credit growth slowing? Dominique agrees with the consensus that sees only limited growth in consumer credit (due Thursday). That is typically what happens at this stage of the business cycle and will be especially so this cycle, which has been driven more by income gains than credit growth.

Sticking with the US, the ISM Services Index will be released later today. Dominique agrees with the consensus showing a small increase though notes that since Q4, the services PMI and GDP have decoupled.

Could a hawkish CPI surprise be on the horizon in Norway? Markets expect a decidedly worse outcome on Friday (CPI-ATE: +6.3% YoY and +0.4% MoM) than the Norges Bank have forecasted (+6.0% YoY and 0.3% MoM), even after softer outturns across the continent. Should markets prove correct, we could see a higher rate path at the June meeting, backing Ben’s call that Norges Bank and the Riksbank are exchanging positions.

Sticking with Scandinavia, the Swedish services PMI will be key following the dreadful manufacturing PMI we saw last week. The manufacturing PMI fell to 40.6 from 45.5, leaving it some distance below market expectations of a less pessimistic 45.0. With services, we have seen a small rebound, though by less than in broader Europe, and Ben believes that markets could be wrongfooted given the bullish expectations.

This week, Dominique and Andrew reflect on the US debt ceiling deal. Dominique also explores how the need to ‘refill’ the TGA could impact market liquidity and gives her take on NFP release.

Viresh Kanabar has worked in the UK financial services industry for over 8 years including in Consulting and Investment Risk. Most recently he launched The Macro Journal Substack where he puts out regular in-depth reports covering all areas of global macro.

Bilal Hafeez is the CEO and Editor of Macro Hive. He spent over twenty years doing research at big banks – JPMorgan, Deutsche Bank, and Nomura, where he had various “Global Head” roles and did FX, rates and cross-markets research.

Photo Credit: depositphotos.com

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