MBS up 13 bps. Stocks down 18.

Long before Jobless Claims and Philly Fed hit the wires, producer price inflation data in Germany came in lower than expected, sparking a decent rally at the start of the European session. The US econ data (especially Philly Fed) has instantly restored the overnight strength with a bit of buying to spare.

Jobless Claims= 245k vs 240k f’cast, 240k prev

Philly Fed Biz Index = -31.3 vs -19.2 f’cast, -23.2 prev

Philly Fed Prices Paid = 8.2 vs 23.5 prev

Leading economic indicators and manufacturing activity are signaling recession, labor markets and consumer spending aren’t. However, the unemployment rate is a coincident/lagging indicator. Moreover, the Bloomberg recession indicator and the NY Fed curve-based recession model are at 55% and 60%, respectively. Every time either model rises above 40% a recession has followed since 1985, and for the NY Fed model it’s been accurate seven out of eight times since 1960.

Existing home sales fell 2.4% in March, according to the National Association of Realtors. Sales were down 22% on a year-over-year basis. The median home price fell 0.9% on a YOY basis to $379,300. Days on market fell to 29 days.

The Conference Board’s Index of Leading Economic Indicators fell by 1.2% in March. The U.S. LEI fell to its lowest level since November of 2020, consistent with worsening economic conditions ahead. The weaknesses among the index’s components were widespread in March and have been so over the past six months, which pushed the growth rate of the LEI deeper into negative territory. Only stock prices and manufacturers’ new orders for consumer goods and materials contributed positively over the last six months.

The Fed’s Beige Book showed the economy deteriorated in recent weeks. Overall, we are seeing evidence that pricing pressures are abating and the labor market is softening.

Inflation data in Germany and the Philly Fed Index in the US provided a friendly one-two punch for bonds at 2am and 8:30am ET respectively.  Nothing much happened after that, to be fair!  Leading economic indicators fell to -1.2 from -0.5 last month.  This is one of the most compelling recession warnings in any of the recent data, but markets weren’t too concerned.  Traders took their opportunity to reinforce the trading range and we’re back to a holding pattern as we wait for the highest consequence data in the first two weeks of May.

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