The Market Today
Markets Continue to Respond to French Election Results
by Craig Dismuke, Dudley Carter
Today’s Calendar – New Home Sales and Consumer Confidence Expected to Slow, Remain Solid: Today’s economic calendar is relatively busy but all reports are set to be released after 8 a.m. CT. The FHFA home price index is expected to show a 0.4% MoM gain in February. The index was unchanged in January which represented the first month of no price appreciation since November 2013. Similarly, the S&P CoreLogic Case-Shiller home price index for February is expected to slow a slight uptick to 5.78% YoY. At 9 a.m. CT, the Census Bureau’s new home sales data is expected to show a 1.4% pullback in March following a healthy 6.1% gain the month before.
Outside of the housing sector, at 9 a.m. CT the Conference Board’s April Consumer Sentiment index is expected to cool after setting a more-than 16-year high in March. However, if the index is an as expected 122.5 it would still represent the second best reading on the consumer since December 2000. Also at 9 a.m., the Richmond Fed Manufacturing Index is expected to drop from 22 to 16.
Overnight Activity – Risk-On Remains the Theme: Asian equities extended Monday’s gains with shares in Japan and China leading a continuation of yesterday’s global rally. European equities are trading higher as well but, not surprisingly, the momentum has slowed a bit following Monday’s massive move to the upside. France’s CAC 40 has added another 0.4% Tuesday to follow yesterday’s more-than 4.0% gain. The gains in Asia and Europe are helping U.S. equity futures to point to another positive open. Currencies shifts are consistent with yesterday’s tone with the Dollar essentially unchanged as the Euro strengthened further and the Yen continuing to drift lower. Sovereign yields are climbing across Europe which has pressured Treasury yields between 2 bps and 3 bps higher across the curve. However, Treasury yields remain below yesterday’s highs (more below) set in the initial sell-off following the French results.
Yesterday’s Trading Activity – Market Response to French Election Holds But Rates Close Off Session Highs: The risk-on in early morning trading held through to Monday’s close as first-round French election fears faded. U.S. stocks gained 1.1% after France’s CAC rallied 4% to lead sharp gains in Europe. Financial companies led the way in both Europe and the U.S. with nine of 11 sectors on the S&P closing in positive territory. Rate-sensitive REITs finished at the bottom of the sector ladder in response to climbing yields. The Euro remained at its strongest level since November and the Dollar never recovered from a full gap down to the lowest level since November 11. A weaker Dollar failed to support commodity prices as gold fell out of favor and crude prices slumped to the weakest level in a month. A subtle but notable result was the failure of Treasury yields to hold their highs from overnight that had pushed yields back into recent trading ranges. The 2-year yield climbed 4.9 bps (+7.8 bps overnight Sunday) to 1.23% while the 5-year noted added 3.1 bps (+8.5 bps overnight Sunday) to 1.80%. The 10-year note yielded 2.5 bps more (+7.5 bps overnight Sunday) at 2.27%.