Italian and Spanish political concerns have sparked a global flight-to-quality trade that is bringing back memories of the 2011/2012 eurozone crisis. Treasuries were well bid overnight, with the 10-year note yield touching as low as 2.79% (currently 2.87%), and S&P 500 futures are down 19 points. Italian 2-year note yields were up as much as 150 bps overnight to 2.83% (highest since 2012), and Italy’s primary equity index is down 3% currently. As to be expected, broad credit metrics (swap and credit spreads) are also leaking wider. Efforts to form a new government in Italy failed over the weekend, and the ECB can’t step in to support Italian bonds unless the country enters a fresh program with the central bank (unlikely in the current Italian political environment).

Today’s risk-off trade is generally tied to questions of the viability of the euro currency and monetary union, which was the central theme of the 2011/2012 crisis. There remains a large amount of excess liquidity in European markets from the ECB, and if we learned anything from recent crises, it’s the power of central bank liquidity in responding to short-term pockets of market volatility. However, while larger credit concerns in Europe may be overblown, this does bring into question any plans for the ECB to begin policy tightening (rate hikes & QE tapering) in the next 6-12 months.

Jason Haley
Managing Director, Investment Management Group

Date TimeEventSurveyActualPriorRevised
05/29/2018S&P CoreLogic CS 20-City MoM SA0.75%0.53%0.83%0.84%
05/29/2018S&P CoreLogic CS 20-City YoY NSA6.45%6.79%6.80%6.76%
05/29/2018S&P CoreLogic CS 20-City NSA Index208.62206.67206.57
05/29/2018S&P CoreLogic CS US HPI NSA Index198.94197.01197.29
05/29/2018S&P CoreLogic CS US HPI YoY NSA6.53%6.34%6.51%
05/29/2018Conf. Board Consumer Confidence128128.7
05/29/2018Conf. Board Present Situation159.6
05/29/2018Conf. Board Expectations108.1
05/29/2018Dallas Fed Manf. Activity23.821.8
05/30/2018MBA Mortgage Applications-2.60%
05/30/2018ADP Employment Change190k204k
05/30/2018Wholesale Inventories MoM0.50%0.30%
05/30/2018GDP Annualized QoQ2.30%2.30%
05/30/2018Personal Consumption1.20%1.10%
05/30/2018GDP Price Index2.00%2.00%
05/30/2018Core PCE QoQ2.50%2.50%
05/30/2018Advance Goods Trade Balance-$71.0b-$68.0b-$68.3b
05/30/2018Retail Inventories MoM-0.40%-0.50%
05/30/2018U.S. Federal Reserve Releases Beige Book
05/31/2018Challenger Job Cuts YoY-1.40%
05/31/2018PCE Core YoY1.80%1.90%
05/31/2018Personal Income0.30%0.30%
05/31/2018Personal Spending0.40%0.40%
05/31/2018Real Personal Spending0.20%0.40%
05/31/2018PCE Deflator MoM0.20%0.00%
05/31/2018PCE Deflator YoY2.00%2.00%
05/31/2018PCE Core MoM0.10%0.20%
05/31/2018Initial Jobless Claims228k234k
05/31/2018Continuing Claims1733k1741k
05/31/2018Chicago Purchasing Manager58.257.6
05/31/2018Bloomberg Consumer Comfort55.2
05/31/2018Pending Home Sales MoM0.40%0.40%
05/31/2018Pending Home Sales NSA YoY-4.40%
06/01/2018Change in Nonfarm Payrolls190k164k
06/01/2018Two-Month Payroll Net Revision30k
06/01/2018Change in Private Payrolls190k168k
06/01/2018Change in Manufact. Payrolls20k24k
06/01/2018Unemployment Rate3.90%3.90%
06/01/2018Underemployment Rate7.80%
06/01/2018Average Hourly Earnings MoM0.20%0.10%
06/01/2018Average Hourly Earnings YoY2.60%2.60%
06/01/2018Average Weekly Hours All Employees34.534.5
06/01/2018Labor Force Participation Rate62.80%
06/01/2018Markit US Manufacturing PMI56.656.6
06/01/2018Construction Spending MoM0.80%-1.70%
06/01/2018ISM Manufacturing58.257.3
06/01/2018ISM Employment54.2
06/01/2018ISM Prices Paid7879.3
06/01/2018ISM New Orders61.2
06/01/2018Wards Releases May Auto Data — Excluding GM