In May, the US Consumer Confidence Index improved, climbing to 98.0 from a revised 86.0. This rise reversed the previous month’s decline. The Present Situation Index increased by 4.8 points, reaching 135.9.

The Expectations Index, assessing short-term prospects for income, economy, and jobs, rose 17.4 points to 72.8, still below the 80-point level linked to recession concerns. Consumers became more optimistic about business conditions and future income, though their view on current job availability weakened for the fifth month.

Influence of Consumer Expectations

The US Dollar Index held steady around 99.40, even as US yields experienced a minor decline. This improvement in the Consumer Confidence Index coincided with recent developments, including a US-China trade deal, which may have influenced consumer expectations positively.

While the spike in the US Consumer Confidence Index to 98.0 suggests greater optimism among households, it’s important to interpret this bounce carefully. The rise reverses April’s sharp drop, but we shouldn’t overlook that the Expectations Index remains below 80, a figure historically associated with fears of economic contraction. This divergence – a stronger present outlook compared with shakier forward-looking sentiment – tells us something essential: confidence has firmed up, but only to an extent.

From our perspective, the uptick in the Present Situation Index to 135.9 shows households are responding to what they see now – stable price levels, moderate hiring, and a general sense that conditions haven’t worsened further. But the fact that the Expectations Index only climbed to 72.8, despite the sharp rise, suggests consumers still expect slower income growth and weaker job prospects over the next six months. Interestingly, job optimism – particularly perceptions around job availability – has now declined for five straight months, flagging a potential softening in the labour market.

It’s worth noting that these shifts have occurred alongside a relatively unchanged US Dollar Index, which remained near 99.40. That outcome is quite telling. One might have expected a move, either higher or lower, given the improvement in confidence and a slight pullback in Treasuries. The stability in the dollar suggests that broader sentiment in the FX market hasn’t budged in any meaningful way – a helpful signal of where positioning might currently be balanced.

Impact on Economic Indicators

There’s reason to think this buoyancy in consumer sentiment could reflect short-term developments, such as progress in Washington-Beijing trade meetings. That dynamic may have given households more clarity or simply reduced uncertainty. It’s a familiar pattern: when geopolitical tensions ease, retail sentiment tends to recover, even if underlying income growth or employment drivers remain shaky.

From a volatility perspective, these data points do shift the risk profile. The Expectations Index’s staying below 80 hints that a downside surprise in job or income figures would gain traction. If employment-related reports in the coming weeks confirm deterioration, that could rapidly swing sentiment. We’ve seen these snapbacks before – confidence improves, only to be revised sharply after softer macro data lands.

Given this backdrop, it would be prudent to concentrate on near-term policy signals, particularly any forward guidance related to interest rates or the labour market. A flattening in yields indicates the bond market is leaning towards slower growth or reduced inflation pressures, which could suppress rate hike expectations moving forward. This matters for pricing in both bond and equity futures positions, since shifts in terminal rate assumptions tend to flow through across asset classes rather quickly.

Carefully watching jobless claims and wage growth metrics during the next fortnight becomes essential. A broadening of job softness, especially if it starts to pull expectations further down, could change volatility regimes quickly. The fixed income space has already started to reflect a tepid growth outlook. If the next round of consumer data or employment metrics extends the slide in forward-looking components, we could start to see the dollar face more pronounced drift or options skew changes.

The sharp improvement in the Expectations Index, despite remaining under the 80 mark, suggests clear momentum potential should another tailwind arise – for example, additional trade clarity or upward revisions to wage trends. For now, any strategy that leans too heavily on either unexplained optimism or deep pessimism may need recalibration. There’s still enough caution embedded in the expectations number to resist aggressive directional calls. We recommend watching implied vols and positioning flows closely, especially in light of how stable the dollar remains despite mixed signals elsewhere.

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