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Economic Summary and Outlook

There was no official US economic data out today.

Tomorrow the index of Leading Economic Indicators will be released at 10:00. Forecast +0.3%, Consensus +0.2%. A sharp decline in initial unemployment claims will be the main factor pushing up the index of Leading Economic Indicators (LEI) in May. The roughly 3% rise in the S&P500 during May will also give the index a boost. On the negative side, a decline in real M2 will
limit the rise in the index.

If our forecast for the LEI is correct, the index will be up about +0.2% compared to six months earlier, suggesting that GDP growth will be modest, at best, in the second half of this year.

The Philadelphia Fed Manufacturing Survey for May will be out at 12:00. Forecast +7.0, Consensus +6.3. As with the New York Fed manufacturing survey, we expect to see the Philadelphia index move higher in May following the recent rise in the national ISM manufacturing index.

Market Summary

The stock market averages moved lower in response to a rise in Treasury yields today. Financial stocks were generally lower amid nervousness about rising rates and about concern over the unwinding of sub-prime mortgage investments held by certain hedge funds.
(DJ INDU 13489, -146; S&P500 1512, -21; NASDAQ2600, -27)

In the FX market, currency movements were muted with the yen weaker against major currencies. The British pound benefited from indications that the Bank of England will be tightening policy again in the near future.
(JPY/USD 123.6; EUR/USD 1.3400 -0.0027)

Treasury yields jumped higher as traders anticipated an increase in corporate bond issuance that will require hedging by the issuers. The yield on the Treasury’s 3-month bill has jumped 20bp in two days, as the death of bill issuance by the Treasury appears to be coming to an end.
(2-year note 4.97%, +5bp; 10-year note 5.14%, +6bp)

Source: Phillip Futures Pte Ltd

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