Syz the moment

Yesterday, the Fed hinted that this could be the last rate hike of this cycle, leading some to wonder if the flattening of the US Treasury yield curve is finally over. After the FOMC meeting, the difference between 10-year and 5-year Treasury yields turned positive. It should be noted that this part of the curve was the first to turn negative in March 2022. Will this new trend continue in the weeks and months to come? Source: Bloomberg

The next ECB meeting is coming up on Thursday and this morning two crucial data points were released. Eurozone core inflation saw a slight decrease in April from 5.7% to 5.6%, marking the first decline in 10 months. This is a positive sign that core inflation is heading in the right direction. Meanwhile, the ECB's bank lending survey indicated that credit standards "tightened considerably" in Q1. This shows that the ECB's monetary policy, which includes rate hikes and quantitative tightening, is starting to have an impact on the system. Source: Bloomberg

It was the lowest GDP print since Q2 2022 when growth was negative to the tune of -0.6%... Personal Consumption added 2.48%, up from 0.70% in Q4. Fixed Investment subtracted -0.07%. The big hit was the change in private inventories, which subtracted 2.26% from the GDP print. Net exports were a modest contributor to GDP, adding 0.11%. Government consumption added another 0.81% to the bottom line number, effectively contributing more than 70% of the final print. Source: Bloomberg, www.zerohedge.com

While US GDP Q1 growth rate came in well below expectations, PCE and core PCE prints were unexpectedly hot, the former coming in at 4.0% above the 3.7% expected and higher than the 3.9% in Q4, while core PCE came in at 4.9%, well above the 4.4% in Q4 and also hotter than the 4.7% expected. In fact, as shown below, this was the 5th consecutive "beat" of median core PCE expectations.

Germany will go from being a net exporter of electricity to a net importer of electricity in Europe after the nuclear power plants are shut down. Last week, electricity imports reached their highest level in one day since 2021. Source: HolgerZ, Bloomberg

German Ifo Business Climate Index improves to 93.6 in April from a revised 93.2 in March. Ifo current assessment index fell to 95 (vs 96 exp. from 95.4 in March. BUT Ifo expectations index improves to 92.2 for the 6th month in a row from a revised 91.0 in March & way above 91.1 expected. Source: Bloomberg, HolgerZ

While equity markets seem complacent about the imminent debt ceiling crisis, the same can not be said of the rates market, where the "kink" in T-bills maturing around the X-date is turning spectacular... Bottom-line: The spread between 3-month (5.12%) and 1-month (3.40%) Treasury yields has never been higher: 1.72%. Indeed, the yield on US T-Bill which mature BEFORE June is much lower than it should be given the current level of the Fed Funds rate: below 4% vs. a Fed Funds rate already close to 5%. This premium is probably related to the fact that, for T-Bill maturing before the end of May, there is no uncertainty related to the debt ceiling, since the US Treasury will have the cash needed to meet principal redemptions. But from June onwards, the risk of the debt ceiling being hit increases; this triggers a jump in yield with T-bill yielding roughly the same than Fed Funds. Source chart: Charlie Bilello

US Home Construction ETF ($ITB) is at a 52-week high, up 25% over the last year. Meanwhile US Housing Starts are down 21% from their peak last April.