SWEDEN: May Economic Tendency Survey Highlights Difficult Riksbank Trade-off
The Swedish Economic Tendency Indicator eased back to 94.6 in May (vs 95.0 prior). The index has now been below the neutral 100 handle for 34 consecutive months. Sentiment fell in all industries other than construction, and while consumer confidence ticked up, it remains at heavily subdued levels. The survey doesn’t provide a clear steer for the Riksbank. Weak sentiment works in favour of a rate cut in June, but expected price metrics remain elevated. There's still plenty of data due later this week, including the final Q1 GDP report.
- Services and manufacturing sector expected prices moved higher in May. The retail expected price balance moved down to 34 from 45 prior, but food and beverage expected prices are still worryingly sticky at 75 (vs 78 prior).
- Expected employment signals remain soft, but the tick higher in labour hoarding metrics suggests this may not necessarily result in even higher unemployment rates.
- Consumer confidence ticked up to 83.1 (vs 81.8 prior). In a recent note, JP Morgan ran an analysis suggesting “a one standard deviation change in [consumer] confidence (10.2pts) impacts consumption by 0.3% saar. Since the beginning of the year, confidence has plummeted 2.0 standard deviations, ie suggesting a 0.6% saar hit to consumption”.
- The initial tariff impact amongst manufacturing respondents appears limited: “Two out of ten firms indicate that their production volumes have slightly declined due to changes in tariffs. Looking ahead, just over four out of ten firms expect a decrease in production volumes due to either altered tariffs or the prevailing uncertainty regarding tariffs; however, this too is assessed to occur only to a limited extent”.
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US TSYS: Extraordinary Measures And Cash Look Sufficient To Head Off X-Date
Treasury has about $164B in "extraordinary measures" available as of April 23 to avoid hitting the debt limit, per its regular report out Friday. That's out of a maximum total of $375B (they have used $211B).
- With Treasury cash looking healthy (around $600B), that's a fair amount of dry powder to get through the summer months to wait out the debt limit impasse. Tax receipts have looked strong with tariff revenues also starting to boost cash flows, further reducing the near-term urgency to adjust bond issuance.
- This has also helped push back analyst “x-date” expectations to later in the summer/September. We expect to hear from Treasury about its own x-date assumptions next week.
US TSYS: Treasury Market Trading Stayed Orderly In April: Fed Report
Liquidity across financial markets including the Treasury market deteriorated after President Trump's April 2 reciprocal tariffs announcement but market functioning was generally orderly, according to the Federal Reserve's semiannual report on financial stability, released Friday. (PDF link is here)
- Treasury market liquidity has been poor for years and yields were particularly volatile in early April, contributing to a deterioration in market liquidity, the Fed said.
- Nevertheless "trading remained orderly, and markets continued to function without serious disruption," according to the report, which looked at information available as of April 11.
FED: Ex-Gov Warsh: Fed Has Failed To Satisfy Price Stability Remit
From our Washington Policy Team - Some fairly sharp words today from ex-Fed Governor Warsh on the central bank (who for what it's worth is seen by betting markets as by far the frontrunner for the next Fed Chair):
- The best way for the Federal Reserve to safeguard its independence is for policymakers to avoid expanding the institution's role over time, including wading into policy areas that are outside its core mission, former Fed Governor Kevin Warsh, a leading contender to replace Jerome Powell as chair next year, said Friday.
- "I strongly believe in the operational independence of monetary policy as a wise political economy decision. And I believe that Fed independence is chiefly up to the Fed," Warsh said in a speech at a Group of Thirty event on the sidelines of the IMF meetings. "Institutional drift has coincided with the Fed’s failure to satisfy an essential part of its statutory remit, price stability. It has also contributed to an explosion of federal spending." His speech made no mention of Trump's tariffs or the appropriate monetary policy to deal with them.
- He said the ideas of data dependence and forward guidance widely adopted by Fed officials are not especially useful and might even be counterproductive.
"We should care little about two numbers to the right of the decimal point in the latest government release. Breathlessly awaiting trailing data from stale national accounts -- subject to significant, subsequent revision -- is evidence of false precision and analytic complacency," he said.
"Near-term forecasting is another distracting Fed preoccupation. Economists are not immune to the frailties of human nature. Once policymakers reveal their economic forecast, they can become prisoners of their own words. Fed leaders would be well-served to skip opportunities to share their latest musings."
