The Market Today
Quiet Calendar; Economic Outlook Webinar – Thursday
by Craig Dismuke, Dudley Carter
VINING SPARKS ECONOMIC OUTLOOK WEBINAR: Vining Sparks 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.
The February Factory Orders report is scheduled for release at 9:00 a.m. CT. The report includes the final data on core capital goods orders and shipments. In the initial release, the data showed future business investment in equipment potentially slowing.
OTHER ECONOMIC NEWS
ICYMI – April 1, 2022 Weekly Market Recap: Treasury curve inversions broadened and deepened last week as another solid jobs report showed the labor market continued to tighten, giving the Fed justification to move forward with plans to aggressively tighten policy to tame uncomfortably fast inflation. Thursday concluded an historic month for the bond market, particularly on the front end of the curve. The 2-year yield soared 90 bps in March and 160 bps in the first quarter, both marking the biggest respective moves since 1984. The 5-year yield jumped 74 bps in March, the biggest monthly increase since 2004, and 120 bps in the first quarter, its largest quarterly increase since 1984. The headlines from the rates market, however, started earlier in the week. The 5-year and 30-year Treasury yields inverted Monday for the first time since 2006 before the 2-year and 10-year yields inverted Wednesday for the first time since 2019. Investors have been laser focused on persistent inflation pressures and the surprisingly fast disappearance of slack in the labor market. Data released last week showed consumer confidence remained low as inflation expectations hit another multi-decade high. Personal income and spending both rose in February but were outpaced by inflation, leading to the tenth decline in real incomes in eleven months. Hiring slowed in March but remained solid, yet the bigger story was the larger-than-expected drop in unemployment, despite another increase in participation, and another firm month for wage growth. With the data reinforcing the market’s worries about aggressive Fed tightening, the 2-year and 10-year yield spread ended Friday inverted by 8 bps, its deepest inversion since February 2007. Click here to view the full recap.
ICYMI – March 2022 Monthly Review: Treasury yields soared in March as the Fed kicked off its tightening campaign to tame the fastest inflation in forty years, a fight that markets are increasingly concerned may threaten the longevity of an uncommon recovery still in its infancy. Click here to view the full review.
Inversion Continues: The inversion of a key spread on the Treasury curve deepened temporarily overnight after tipping over last week for the first time since 2019 and closing Friday the most upside-down since 2007 (more above), raising questions about the economy’s future even before the Fed acts on its plans to aggressively tighten policy. The spread between the 2-year and 10-year Treasury yields slipped below 9 bps initially Monday before paring the move in the approach to U.S. trading. The shape of the curve and the implications for the economy will remain a major focus this week as investors prepare to scour the Fed’s March Minutes for more details about officials’ plans to tighten policy, with particular interest on likely parameters for shrinking the balance sheet. U.S. equity futures were modestly higher ahead of U.S. trading, pushed to new session peaks around 5 a.m. CT by a more than 20% surge in shares of Twitter. An SEC disclosure showed Elon Musk has taken a 9.2% stake in the company. Chinese markets were closed for a holiday but weekend reports indicated the country’s latest COVID-19 outbreak, which has already led to sprawling lockdowns, continues to grow. Europe’s Stoxx 600 rose 0.4% despite indications that mass graves were discovered in areas retaken by Ukrainian forces, fueling talks among European governments of additional sanctions on Russia. Oil prices rose more than 1% to push U.S. WTI back above $100 per barrel. At 7:30 a.m. CT, the 2-year Treasury yield was 4.6 bps lower at 2.41% while the 10-year Treasury yield had inched higher to 2.38%, keeping the related spread inverted for a third session. The 2-, 3-, 5-, and 7-year yields all continue to trade above the 10-year yield.