The Market Today

Slow Start to Week with Focus on Thursday’s CPI Inflation Report: Today’s calendar is very quiet with just the Consumer Credit report scheduled for release at 2:00 p.m. CT.  Credit is expected to rise $16.0 billion for the month of March.   Also on the schedule are public comments from Fed officials Bostic, Barkin, Kaplan, and Evans.  We do not expect them to make enough waves with their comments to meaningfully affect the markets.

 

For the week, market focus will be on another busy week for corporate earnings reports and Thursday’s CPI inflation data.  Inflation is key to the Treasury market.

 

TRADING ACTIVITY

Overnight – Tech Stocks Set to Lead Equities Higher and Oil Prices Continue to Move Up, But Treasury Yields Dip: Several themes from late last week carried over into early-Monday trading of U.S. assets. Strength in tech companies’ should lead a continuation of Friday’s rally based on overnight movements in futures contracts. Nasdaq contracts were up 0.7% while those for the Dow and S&P 0.4% higher. Oil prices were up roughly 1% after a more than 3% gain last week on concerns the U.S. could crumple up the current version of the Iran nuclear deal. U.S. WTI crossed above $70 per barrel overnight for the first time since November 2014 as investors wait to see if the White House will choose to re-impose sanctions on OPEC’s third largest producer. Those geopolitical forces continued to overshadow a strengthening Dollar and record U.S. production. The Dollar extended its recent gains overnight to eclipse a new year-to-date high and the DOE last week reported a new all-time high for U.S. production. But Treasury yields, which were little changed on net last week, have moved to near their lows of the day within the last few minutes. The 2-year yield was down 0.4 bps to 2.49%, a new high for the cycle, with the 10-year yield down 1.1 bps at 2.94%. Elsewhere, European stocks were firmer but sovereign yields were lower after more data disappointment. Markit’s Eurozone retail PMI moved into contraction for the first time in 12 months and matched its lowest level since June 2016.

 

NOTEWORTHY NEWS

ICYMI – May 4, 2018 Weekly Market Recap: Compared with where it started, the Treasury curve was imperceptibly different by last Friday’s close despite a week full of important economic data and more impressive moves in other asset markets. The 2-year yield rose just 1.3 bps to settle at 2.50% while the 10-year yield drifted down 0.7 bps to end at 2.95%. There was a piece of data on almost every pillar of the U.S. economy, but the PCE inflation report on Monday, the Fed’s latest decision on Wednesday, and Friday’s nonfarm payroll report were key. As was the case with CPI inflation, PCE inflation was boosted by base effects with the core measure rising from 1.6% YoY to 1.9% in March. The Fed on Wednesday acknowledged that inflation had “moved close” to 2% and reflected a greater confidence it would “run near” their target over the medium term. The Statement left the markets expecting another rate hike in June. On Friday, total payrolls, although still solid on average, were a miss for April but the unemployment rate fell to a near 18-year low of 3.9%. Still, the seemingly tight labor market continued to create only subdued wage pressures. Hourly earnings grew a below-estimate 2.6% YoY in April. Click here to view the full recap.