US Economy: Weekly Commentary – May 13, 2024.
US Market Review
US bond yields fluctuated with a rise in the short end of the curve along with a decline in the longer dated maturities influenced by limited economic data. Stock markets had a positive week led by Mid and large-cap firms outpacing smaller counterparts. Crude oil prices rose modestly, gold surged due to central bank demand, and Bitcoin posted another week of declines.

Bond yields in the US displayed a mixed performance throughout the week. Bond curve saw an inversion led by a rise in the short end of the curve along with a decline in the longer dated maturities, in a week lacking significant economic releases. Despite this volatility, the growing inflationary pressures indicated by consumer sentiment data pose challenges for predicting any rate cuts in September. Specifically, the yield for 10-year bonds decreased to 4.502%, while 2-year bonds saw an uptick to 4.874%.

The stock markets had a favourable week. However, the "7 Mag" encountered hurdles, notably due to Tesla's significant decline (8%). Moreover, mid and large-cap companies outperformed micro and small-cap counterparts. The USD/EUR exchange rate-maintained stability at 0.929.

WTI crude oil prices experienced a modest increase of 0.28%, propelled by encouraging trend data from China and the US job report. Gold witnessed a notable uptick of 2.45%, primarily driven by heightened demand from central banks amid market and geo-political instability. Meanwhile, Bitcoin continued its price decline.
US Market Views Synopsis
Consumer confidence posted a six-month low, dropping to 67.4. Inflation expectations saw a rise to 3.5% for the upcoming year. Oil prices surged on US crude inventory decline, but concerns persist over weak demand and OPEC+ output policies amid prices nearing $80/bbl.

Consumer sentiment, as reflected by the University of Michigan's index, plummeted to 67.4 in May 2024, hitting a six-month low below market expectations. Inflation expectations surged to 3.5% for the upcoming year and 3.1% long-term, signalling concerns over rising prices, unemployment, and interest rates. Meanwhile, oil prices rose following a decline in US crude inventories, though demand worries persist. OPEC+ debates output policies amid prices nearing $80/bbl, while weak US gasoline demand and shrinking Asian refinery margins add to market uncertainty.
Consumer sentiment
The consumer confidence index declined to 67.4, hitting a six-month low. Inflation expectations increased to 3.5% for the upcoming year and 3.1% in the long term.

The University of Michigan's consumer confidence index for the United States took a notable dip to 67.4 in May 2024, down from April's 77.2, marking its lowest point in six months and falling below market forecasts of 76. Both current conditions and future expectations saw declines, dropping to 68.8 and 66.4, respectively. Meanwhile, inflation expectations spiked for the upcoming year, reaching 3.5%, the highest level in six months, up from April's 3.2%, and for the next five years to 3.1%, also the highest in six months, compared to 3.0%. Consumers voiced apprehension about potential rises in inflation, unemployment, and interest rates in the coming year.

Aligned with consumer sentiment, our model projects an inflation rebound to 3.8% by 2025. Factors such as immigration, investments, and geopolitical tensions are anticipated to impact the economy, exerting inflationary pressure. As these pressures intensify, we anticipate a decline in consumer confidence. Interest rates may remain unchanged this year.
Oil inventories
Oil prices surged on US crude inventory decline, countering demand worries. OPEC+ mulls output policy as prices near $80/bbl. EIA data shows a 1.36m barrel drop, diverging from API. Weak US gasoline demand persists; Asia's refinery margins shrink despite China's export boost.

Oil prices bounced back this week, supported by a drop in US crude inventories. However, worries about demand trends continue. The changing market situation is expected to intensify talks on OPEC+ output policy ahead of the next Joint Ministerial Monitoring Committee meeting. With prices nearing $80/bbl, OPEC+ members may opt to uphold their 2.2m b/d of additional voluntary cuts through the latter part of 2024, potentially tightening the market later in the year, barring unforeseen demand setbacks.

According to the Energy Information Administration (EIA), US commercial crude oil stocks fell by 1.36 million barrels last week, driven by strong exports and increased refinery operations. Despite this decline, concerns remain about weaker-than-expected US gasoline demand. Moreover, in Asia, shrinking refinery margins heighten worries, especially with China's recent announcement of refined product export quotas. Meanwhile, the US Department of Energy (DoE) indicates a readiness to buy up to 3.3 million barrels of US sour crude oil for October 2024 delivery, albeit at a slightly higher price limit.

Oil prices are expected to maintain their volatility throughout 2024 due to various factors. Tensions, increased demand as economies like Germany or China show signs of improvement, and inventory shortages will contribute to fluctuations in crude oil prices. However, we do not expect a significant rebound.
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