Leader Week in Review -- May 8th, 2015
Economic Data Releases:
The huge updraft in yields took a pause last week as the curve was mostly flat. MBS spreads tightened while Credit spreads were also flat. Investor focus was on the April labor report, with investors positioning themselves ahead of the Friday report in volatile trading sessions mid-week. Despite the shockingly low March jobs report, which was revised even lower, the labor market is no longer the Fed’s main concern with regard to raising rates.
With the unemployment rate at 5.4%, the unemployment gap is now closed since the “natural” rate of unemployment is estimated at 5.0-5.4%. In fact, wage growth has been ticking up, which is consistent historically with how wages perform when the economy closes the unemployment gap (shaded grey areas, chart 1).
We expect wage growth to continue to accelerate and the Fed’s main focus to turn to inflation, which is beginning to hook up as the effects of the stronger dollar and weak oil dissipate.
Upcoming Economic Data Releases:
· Tuesday: JOLTS
· Wednesday: Retail Sales
· Thursday: PPI, Weekly Jobless Claims
· Friday: Capacity Utilization, U. of Michigan Consumer Confidence
· Tuesday: Housing Starts
· Wednesday: FOMC Minutes
· Thursday: Weekly Jobless Claims, Existing Home Sales
· Friday: CPI