The Market Today
Stocks Hit New Record-High in French Election Follow-Through
by Craig Dismuke, Dudley Carter
Today’s Calendar – Small Business Optimism Remains Strong but Weakens Fractionally in April: Small business confidence pulled back from 104.7 to 104.5 in April, a slight drop beating expectations of a larger drop. Hiring expectations remained high at +16% and those expecting higher sales rose from +18% to +20% (a strong-enough reading). However, net compensation plans fell from +28% to +26%, down from +30% in January. Small businesses reporting difficulty in filling jobs rose to +33%, the highest level of this cycle and the highest since 2000. Overall, small business confidence remains strong but has dialed back slightly in recent months. At 9:00 a.m. CT, the March Job Openings report is expected to show another strong month of job openings, albeit slightly weaker than the February data. March’s wholesale inventories data will also be released, allowing us to sharpen our pencil on the 1Q GDP revision. George, Rosengren, Kaplan, and Bullard are all on the schedule to speak today.
Overnight Activity – Yields, Equities, the Dollar all Rise: European equities have erased yesterday’s losses and are trading at their highest level in 20 months. The gains followed a more mixed result for Asian exchanges where Japan’s Nikkei and China’s CSI 300 both moved lower. Chinese equities have been quietly losing value for weeks, are down 4.7% from April’s peak and appear to be headed towards their year-to-date lows. Yields on European sovereigns are up, building on afternoon momentum from yesterday’s session. European yields initially fell following Sunday’s election results but gradually began to reverse throughout the day Monday. The losses for Japan’s Nikkei 225 transpired despite the yen extending its three-week slide and falling to its weakest comparison to the Dollar since the Fed’s last hike in March. The euro weakened for a second day and is down 1% since Sunday’s election. The Treasury curve is higher by 1 bps at most maturities, the Dollar rose to its strongest level since before the first round of the French election, and equity futures are modestly higher.
Yesterday’s Trading – S&P Sets Another Record High as Treasury Yields Rise Following Sunday’s French Election: Treasury yields rose Monday, bucking an overnight (Sunday) trend of lower yields in Germany and France following Emmanuel Macron’s election as France’s next president. Yields jumped swiftly as U.S. trading began with the 2-year yield climbing 2.0 bps on the day (1.33%) and the 10-year yield 3.8 bps higher (2.39%) by the close. An extra 1.06% for holding a 10-year Treasury over 2-year debt was the most in nearly two weeks. The Dollar gained as the Euro turned lower following Sunday’s French election. However, the big move in the Euro/Dollar currency cross following the first round of the French presidential election (April 23) remains intact and the Euro is nearly 3% stronger against the Dollar than one month ago. The S&P eked out another record high close (+0.004%) thanks to a last minute rally that helped both the Dow and S&P turn positive for the day. The Nasdaq also notched another record-high close. Crude prices were volatile again but managed to add to Friday’s gains on hopes OPEC will extend their recent cuts past June.
Senior Loan Officer Survey Reports Generally Easier Credit, Broad Weakening of Demand: The Fed’s latest survey of senior loan officers offered mixed signals on the aggregate supply of and demand for credit across the major lending categories. Fewer financial institutions tightened lending standards on C&I loans since the previous survey but demand for those same types of loans eased as well. On the income side, more institutions saw tighter spreads on C&I products. Conversely, in the CRE categories the same institutions reported tighter standards for construction and land development and multifamily loans while those on nonresidential structures were essentially the same. At the same time, demand across all three of the CRE categories softened. On the consumer side, standards for auto loans were essentially unchanged while those for credit card and mortgage loans eased. Demand was weaker across almost every consumer category.