Last week was relatively uneventful, other than the hotter than expected Services PMI and slowdown in consumer credit. Markets drifted lower. Oil continued its move higher.
The week ahead, however, could have some fireworks. Let's dive in and talk about the markets, but before we do, zoom out to the big picture.
The Big Picture
Services PMI showed unexpected growth in new orders, unemployment, and prices, giving rates a bit of shock and the markets reason to reevaluate when the Fed may change course.
The potential for services inflation to re-accelerate is something we're going to be watching for in this week's CPI data. More on that later.
Productivity has been on the rise, which is encouraging as it suggests that we're starting to see a normalization after a rather sharp drop.
Goldman Sachs expects that high yield debt and leveraged loans will see a peak in their defaults for this credit cycle during 2024, meaning that credit stress could continue to rise leading into this peak. That could increase rates, particularly on riskier areas of debt.