Morning Notes — Expectations

Yesterday’s rebound in the S&P 500 was attributed to several drivers, but the most important was the better-than-expected May retail sales that followed a surprisingly strong May Jobs Report on 6/5. Yesterday’s retail sales number pushed the US Economic Surprise Index (ESI) to an all-time record high, but economists remain skeptical and expectations for a full recovery by mid-2021 remain grounded. As noted yesterday, there’s a strong tendency for equities to continue rising as long as economic momentum remains intact. Today’s release of May housing starts came in at 0.974M SAAR vs consensus for 1.117M, but still above April’s level of 0.934M…let’s call it ‘positive linearity.’ The first real test of economic momentum comes next Tuesday with the release of June flash PMIs from Japan, UK, Eurozone and the US. PMI data is our best forward-looking indicator and expectations remain low with US consensus for manufacturing at 44.3 and services at 44. Under ‘normal’ circumstances, absolute PMI levels matter with 50 acting as the contraction/expansion demarcation.