The Market Today

Quiet Week Kicks Off with Builder Sentiment and Bullard


by Craig Dismuke, Dudley Carter

TODAY’S CALENDAR

Homebuilder Confidence, Fedspeak, Bank Earnings: The April NAHB homebuilder sentiment survey is expected to show a fourth consecutive monthly decline today (9:00 a.m. CT).  St Louis Fed Bank President Bullard speaks today at 3:00 p.m.  Corporate earnings reports continue today with BAC and BNY Mellon just releasing results before the market open. Both beat headline earnings expectations.


OTHER ECONOMIC NEWS

ICYMI – April 15, 2022 Weekly Market Recap: Interest rates remained volatile last week and the curve continued to steepen as investors balanced nascent signs of a peak for goods inflation with continued firming across services categories and new multi-decade fast annual rates, dynamics that drove additional Fed officials to call for “expeditiously” tightening monetary policy over the months ahead. Bond yields had surged in the prior week and continued to climb into Monday’s session. Ten-year yields in Australia and Germany closed at their highest levels since 2015 and the 10-year Treasury yield crossed above China’s 10-year yield for the first time since 2010. Interestingly, yields tumbled Tuesday immediately following the release of March CPI data showing headline and core inflation accelerating to 8.5% and 6.5%, respectively, both marking the fastest rates since 1982. Investors, however, latched on to moderation of monthly core inflation that reflected a decline for goods inflation, the first sign of a possible peak for historically strong price increases for goods. Notably, services inflation continued to gain steam, a risk for inflation to remain more persistent, and producer prices accelerated more than expected to record paces. Spread throughout the week, multiple Fed officials called for policymakers to continue “expeditiously” moving policy to a neutral setting as they seek to rein in unacceptably high inflation, a process that many have said could include 50-bps rate hikes in May and at future meetings. Inflation’s negative impact on economic activity remained clear in data released throughout the week. Small business confidence fell more than expected in March as the outlook for business conditions hit a record worst and the number citing inflation as their biggest concern hit an all-time high. The March retail sales report also showed momentum slowed from a revised-higher pace in February; core sales dropped 0.1% March, a second monthly decline, and 0.5% when adjusted for inflation. Despite the softer spending data, and recovering from an early-morning drop after the ECB’s decision, Treasury yields surged Thursday. The 2-year yield pared its weekly decline to 5.8 bps, closing at 2.45%. The 10-year yield ended 12.8 bps higher at 2.83% after as 12.9-bp jump on Thursday, closing at its highest level since December 2018. The spread between the two securities finished at 36.9 bps, its highest level since March 1. Click here to view the full recap.


TRADING ACTIVITY

Treasury Yields Continue to Fluctuate in Low Global Volumes with Many Countries Still Closed for Holidays: Longer Treasury yields hit new cycle highs overnight amid below-average global volumes and U.S. index futures slipped as investors gear up for another week of corporate earnings. Asian markets closed lower with few exceptions while European markets remained closed in observance of Easter Monday. China’s CSI 300 fell 0.5% despite first quarter economic growth proving more resilient than expected. Activity grew at an unannualized 1.3% rate last quarter, topping estimates for 0.7%, despite clear signs economic activity was hit hard by widespread virus lockdowns. Retail spending declined 1.9% in March, the second largest drop since the start of the pandemic, and urban unemployment rose unexpectedly from 5.5% to 5.8%, its highest level since May 2020. The PBOC lowered the reserve requirement for major banks last Friday after surprising markets the day before by holding key lending rates steady. U.S. index futures traded in negative territory throughout the overnight session but had trimmed stronger losses around 7 a.m. CT. S&P 500 contracts were 0.3% lower after falling as far as 0.7%, regaining some ground as shares of Bank of America rose following a better-than-expected earnings report. Treasury yields rose and were steeper at 7:20 a.m. CT as the 5-year and 10-year yields climbed to their highest levels since December 2018. The 5-year yield inched higher to 2.79% while the 10-year yield moved up 1.8 bps to 2.85%. The 2-year yield was 0.2 bps higher at 2.46%.


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