The markets continue to gyrate, with treasury yields reaching multi-year highs; and then slightly dropping late last week as corporate earnings continue to surprise on the upside.
1.Ten-Year Treasury breaks Key 3% Level – for the First Time in nearly 4 Years
Meanwhile, two-year Treasury notes also touched a high last week, reaching 2.5%, for the first time since 2008. Higher inflation expectations coupled with the belief that the Federal Reserve continues on its path of tightening monetary attributed to the higher rates.
Oil prices also touched three-year highs last week. Further, weekly jobless claims also resulted in a 48-year low, printing 209k vs 230k expected. The better-than-expected number may partly be due to the timing of the Easter holiday and spring break. Investors will focus on the April unemployment data to be released this Friday.
The yield curve continued its bear flattening stance, that is a rate environment in which short-term rates are increasing at a faster pace than long-term interest rates, especially towards the end of last week as US GDP data surprised on the upside at 2.3% beating market consensus of 2%. The market expected fiscal cuts to serve as a boost to GDP, although consumer spending came in lower-than-expected. Some market practitioners believe the impact of the tax-cuts will trickle through the second quarter.
2. Corporate Earnings Continue to Shine
Better-than-expected corporate earnings served as a boost to equity markets both in the U.S. and Europe.
3. European Central Bank keeps Key Rate Unchanged; Cautious Stance
ECB President Draghi did not disclose the fate of its bond-buying program as officials want to better understand the economic condition of the Eurozone before removing its accommodative stance. Recent data indicated that there might be a slowdown in the economy and while growth may continue in 2018, it may not be as strong. For example, German industrial output recently surprised to the downside as well as declining confidence levels.
While the market largely expected the ECB to keep rates unchanged, Draghi’s cautious outlook on phasing out its bond-buying program caused the Euro to selloff relative to the USD on the back of his press conference on Thursday. The EUR/USD cross is currently trading above 1.207% ahead of a big economic data week in the US.
4. Federal Reserve Takes Center Stage This Week
The FOMC is expected to keep rates unchanged when it meets this Wednesday and Thursday. There will be no press conference or economic outlook shared post meeting. Close attention, however, will be placed on the USD core personal consumption expenditures index, to be released on Monday as an inflation gauge.
Upcoming this week:
While the market will pay close attention to the FOMC meeting on Wednesday and payrolls on Friday, a slew of other potentially market-moving data will be released this week, key releases include:
USD core personal consumption expenditures (Monday)
AUD rate decision (Tuesday)
NZD unemployment
EUR GDP (Wednesday)
EUR CPI (Thursday)
AUD central bank monetary policy statement (Friday)
US labor/unemployment/payroll
Key U.S. data includes: core personal consumption expenditures (Monday), Chicago PMI, pending home sales, market/ISM manufacturing PMI (Tuesday), ISM prices paid, ADP employment change (Wednesday), ISM mortgage applications, trade balance (Thursday), jobless claims, nonfarm productivity, market services PMI, market PMI composite, ISM non-manufacturing PMI, factory orders, payroll data (Friday), April unemployment rate.
Fed Official Randy Quarles is scheduled to speak on Friday.
Overseas data includes: CNY PMI (Monday), German retail sales, Swiss leading indicators, German CPI, AUD new home sales (Tuesday), AUD central bank rate decision, GBP mortgage approvals, CAD GDP, CAD market manufacturing PMI, NZD global dairy trade price index, NZD unemployment data, CNY Caixin manufacturing PMI (Wednesday), CHF consumer climate, German market manufacturing PMI, EUR market manufacturing PMI, Italian unemployment, GBP PMI construction, EUR GDP, EUR unemployment, AUD new home sales (Thursday), AUD building permits, EUR CPI, CAD trade data, AUD trade data (Friday), AUD monetary policy statement, NZD inflation expectations, German/GBP/EUR market services PMI, CAD purchasing managers index.
