The Market Today

ECB Officials Crafting QE Message in Advance of Next Week’s Central Bank Meetings


by Craig Dismuke, Dudley Carter

TODAY’S CALENDAR

Quiet Morning:  Initial jobless claims for the week ending June 2 fell 1k to 222k, continuing to highlight just how tight the labor market is.  The number of people who continue to receive unemployment insurance rose from 1.720 million to 1.741 million.  Despite the WoW increase, the 4-week moving average for continuing claims is now at a new low dating back to 1973.  The 1Q Household Flow of Funds Report (including net worth) is scheduled to be released at 11:00 a.m and April’s Consumer Credit report at 2:00 p.m.

 

TRADING ACTIVITY

Yesterday – Stocks Climbed Again, Treasury Yields Rose with European Counterparts after ECB Officials Said QE Could End Soon: The Dow rebounded 1.4% Wednesday to lead a strong day for U.S. stocks that saw the blue-chip index close above 25,000 for the second time since March, the S&P 500 climb for a fourth straight session, and the Nasdaq register its third consecutive record close. Materials led 10 of 11 sectors within the S&P higher, pushing the broader index up 0.9%. Financials finished in the second spot as higher rates and a steeper curve gave U.S. banks a boost. Utilities companies, whose valuations are generally punished by higher rates, were the sole loser. Switching to the sovereigns screen, higher Treasury yields were consistent with and dwarfed by shifts in Europe. The trend higher was set in motion ahead of U.S. trading after several ECB officials said a 2018 end for QE could be reasonable. That applied upward pressure to European yields which helped pull Treasury yields higher. For the day, the 2-year yield rose 2.4 bps to 2.52% while the 10-year yield added more than 4 bps to 2.97%, the highest since May 24. Those same dynamics gave the Euro a lift against the Dollar to its firmest level since May 22.

 

Overnight – Treasury Yields Reach Two Week High: Equities in Asia registered solid gains overnight in response to yesterday’s U.S. rally while European indexes have tilted more modestly to the upside. The MSCI Asia Pacific Index gained approximately 0.7% while the Stoxx Europe 600 had improved a smaller 0.1% halfway through Thursday’s trading. Germany’s 10-year yield had risen 4.2 bps to 0.50% after adding 9.6 bps in yesterday’s session on speculation the ECB could wrap up its QE program this year. In contrast to the optimism implied by those remarks from several ECB officials, who said the fate of its QE program would be discussed at next week’s meeting, the final 1Q GDP revision overnight reminded investors the Eurozone economy grew just 0.4% last quarter. In addition, German factory orders fell unexpectedly in April. That marked a fourth consecutive monthly decline, the first such stretch since 2011. Still the disappointing data has failed to dislodge the Euro from its gains built on the speculation surrounding QE. Treasury yields had also inched higher, with the 10-year yield briefly moving within 1 bp of 3.00%. The 2-year yield was 1.2 bps higher at 2.53%.

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