The Market Today

Global Yields Push Higher on Higher Oil, Conclusion of ECB Emergency Asset Purchases

by Craig Dismuke, Dudley Carter

VINING SPARKS ECONOMIC OUTLOOK WEBINAR: We will host our 2Q Economic Outlook Webinar on Thursday, April 7 (click here to register).  We will walk through the current inflation environment, highlighting the uncertainty that lies ahead.  We will also look at the historic pivot for monetary policy during 1Q and the implications of the inverted yield curve that has resulted.


Trade Imbalance Remains: Imports and exports both rose a similar amount in February keeping the monthly trade deficit unchanged at $89.2b.  The trailing 12-month trade deficit climbed to $907b, the largest on record.  The trade deficit was expected to begin narrowing as global demand began to recover subsequent to the surge from the U.S.  However, the imbalance in the recoveries remains evident and continues to be a headwind to U.S. GDP.  Since February 2020, U.S. imports are up 29.0% while exports are up just 11.6%.

Service Sector PMIs and Fedspeak: The final revision to the March S&P Global Services PMI (formerly the Markit Services PMI) is scheduled for 8:45 a.m. CT.  At 9:00 a.m., the more influential ISM Services PMI is expected to bounce a few points after declining sharply over the last three months.  There are three Fed officials on the tape today including Governor Brainard (9:05 a.m.), San Francisco Bank President Daly (11:30 a.m.), and New York Bank President Williams (1:00 p.m.).


Stocks Cut into Monday’s Gains on Tuesday as Global Yield Curves Steepen Higher: The S&P 500 jumped 0.8% to start the week despite most sectors declining and the Treasury curve steepened for just the second time in seven days. A Twitter-led rally in tech-related names kept the indices afloat Monday after an SEC filing disclosed that Elon Musk had taken a 9.2% stake in the social media giant. Shares of Twitter surged more than 27% in their best performance ever and Musk’s Tesla jumped 5.6%. Reflecting the weight of tech-related companies in the S&P 500, the index’s daily gain unfolded despite seven of eleven sectors and more than 50% of total names losing value. The Dow rose 0.3% while the Nasdaq jumped 1.9%. The risk-on tone fueled a steepening of the yield curve, a rare occurrence as of late, after it closed Friday at its deepest inversion since 2007. By Monday’s close, the 2-year yield had dropped 3.4 bps to 2.42% while the 10-year yield added 1.3 bps to 2.40%, cutting the inversion between the two to around 3 bps.

The narrowness of yesterday’s tech-focused gains on Wall Street failed to excite foreign investors Tuesday. While Chinese markets remained closed for a holiday, the rest of Asia traded to mixed finishes and a broad gauge of European stocks struggled for momentum, held back by losses in the region’s major economies. Oil prices rose again Tuesday amid renewed uncertainty related to the war in Ukraine. Reports and images from the weekend depicting civilian killings by Russian forces has stirred up talks of even tougher Western sanctions against Putin’s country. Europe has stopped short of significant sanctions against Russian energy, a reflection of its heavy dependence on Russia for energy commodities, but reports earlier this morning said the bloc was considering a ban on imports of Russian coal. The U.S. Treasury announced Monday evening that it would no longer allow Russia to make Dollar-denominated payments on its debt from accounts it has at U.S. banks. Treasury yields continued to rise and steepen overnight but remained inverted ahead of U.S. trading, an indicator that investors are concerned about the outlook for the economy. Prior to the release of the March ISM Services index later today, Europe’s Composite PMI was revised up from 54.5 to 54.9 on a stronger-than-estimated reading on the services sector. At 7:40 a.m. CT, the 2-year Treasury yield was 5.3 bps higher at 2.48% with the 10-year yield up 7.8 bps at 2.47%. Those sizeable moves trailed even larger increases across most of Europe, where France, Italy, Spain, and Portugal all saw 10-year borrowing costs rise by double digits. Last Thursday marked the end of the ECB’s emergency asset purchases of government bonds, its primary step so far to tighten policy in the shift at global central banks to try and rein in historic inflation.

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