The Market Today

Heavy Week for Corporate Earnings; Yields Rising; ECB and BoJ Decisions


by Craig Dismuke, Dudley Carter

THIS WEEK’S CALENDAR

Home Sales: Existing Home Sales are expected to increase 0.2% MoM in March in this morning’s report.  After falling in two of the last three reports, any increase will be positive news.  March’s New Home Sales report is scheduled for Tuesday and is also expected to show a gain – what would be the first monthly gain in sales in four months.

 

Consumer Confidence: The Conference Board’s report on consumer confidence is scheduled for Tuesday and is expected to show a small pullback from a very strong level. The University of Michigan’s final revision to its April data is set for Friday and is expected to show current conditions pull back more meaningfully on higher gas prices and weaker stock prices.

 

1Q GDP: The first estimate of 1Q18 GDP growth is expected to show 2.0% expansion on an unusually weak quarter for the consumer.  However, the consumer data continues to point to strength and a rebound in 2Q.  The GDP report will accompany the release of the 1Q Employment Cost index, arguably the best measure of wage growth, coming on the heels of 4Q’s report showing the strongest pace of gains of this cycle.

 

Monetary Policy:  The Federal Reserve enters its quiet period ahead of next Wednesday’s FOMC Meeting and policy decisions.  The ECB meets Thursday and the results could be interesting as the economic data have shown some weaker signs of late.  The Bank of Japan meets Friday with a policy statement and its quarterly outlook on tap.  The BoJ has yet to scale back its easy programs but with inflation making baby-step progress, there is a risk to sovereign debt prices that they signal a future shift in policy.

 

Corporate Earnings: The 1Q earnings season continues this week.  Thus far, 91 of the S&P 500’s companies have reported with 60 of those beating sales estimates and 74 beating earnings estimates. Google, Coca Cola, Caterpillar, United Technologies, Xerox, Boeing, and others are on the schedule.

 

TRADING ACTIVITY

Overnight – 10-Year Treasury Yield Flirts with 3.00% for the First Time Since 2013: Foreign equities have edged lower to start the week as sovereign yields moved up and the 10-year Treasury yield made its latest attempt to test the important 3%-level. European yields rose the most overnight (U.K. 10-year yield +4.4 bps, German 10-year +3.7 bps) ahead of Thursday’s ECB decision but all eyes remain focused on the U.S. Treasury curve. Rising commodity prices last week became the last factor to give investors a bit of inflation indigestion and helped push the yield curve to its highest level in years by Friday. Monday’s drift upward has added to those gains and taken the 10-year yield back near 3%; overnight, the yield reached as high as 2.995% before easing back down. U.S. equity futures were choppy in response but all back in positive territory before the open. In addition to higher rates, investors are gearing up for the busiest week yet for corporate earnings. As the U.S. yield curve has risen the Dollar has strengthened, moving above its three-month trading range and to its strongest level since January 15.

 

NOTEWORTHY NEWS

ICYMI – April 20, 2018 Weekly Market Recap: Treasury yields touched new multi-year highs last week after a commodities rally became the latest reminder for markets that inflation may be firming. Longer yields flat-lined during the first two days of trading as investors disregarded a targeted joint strike (U.S., France, U.K.) in Syria over the weekend and showed little sustained response to March’s stronger-than-expected retail sales result. But activity picked up Wednesday as crude prices rallied on a bullish U.S. inventory report and speculation that Saudi Arabia was looking for $80 oil. U.S. crude climbed to its highest level since December 2014. For the week, the 10-year Treasury yield rose to 2.97%, its highest mark since January 2014. The 2-year yield finished at 2.46% and the 5-year yield closed at 2.80%, the highest yields since August of 2008 and 2009, respectively. U.S. stocks rose and fell amidst earning news and finished positive for the week despite the pressure of higher rates. Click here to view the full recap.

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