The juggling act continued as the market balanced strong corporate earnings over the week, President Trump’s commentary driving oil prices down (though they did bounce back) and a sell-off in treasuries given better-than-expected economic data.
I. Corporate Earnings
Corporate earnings continue to beat expectations, which in some cases were already high. Nearly 87 companies reported earnings thus far, with about 80% topping profit expectations, according to Reuters. The positive outlook in equities was offset with Apple getting dinged as Morgan Stanley forecasted lower iPhone sales and weakened demand from China.
II. Oil Drops
Oil prices and energy stocks also took a hit on the back of President Trump’s tweets criticizing OPEC and stating that oil prices are artificially high. Brent crude prices have been edging higher reaching over $70, touching three-year highs since January. Prices were around $73.57 at the time of this writing. Higher oil prices in 2018 will be attributed to decreased supply and increased demand while increasing geopolitical tensions, including potential trade wars and tariffs, will continue to create price volatility.
III. Treasury Yields Rally
Ten-year Treasury yields edged above 2.9%, levels not seen since February. Stronger economic data as both weekly jobless claims and the Philadelphia Fed Index surprised on the upside prompted higher rates. Further, easing of political tensions this week coupled with foreign government bonds, such as German bunds, creeping higher also fueled the rise in Treasury yields. At the time of this writing, the 10-year bond yield was at 2.967%, about ten basis points higher over the week.
Separately, inflation readings for both the Eurozone and Japan came in lower-than-expected. Both Central banks are expected to meet next week (ECB on Thursday and BoJ on Friday) and will likely keep their key rates unchanged at 0% and -0.1% respectively. The dollar rallied relative to both currencies.
Watch out as positive economic data and market momentum may push 10-year Treasury yields above the 3% ceiling.
Domestic economic data includes: Chicago Fed National Activity Index (Monday), PMI data, Existing home sales, New home sales (Tuesday), MBA mortgage applications (Wednesday), EIA crude oil stock change, durable goods (Thursday), Q1 GDP (Friday), core personal consumption expenditures and Q1 employment cost index.
Key overseas data releases include: German and EUR PMI data (Monday), AUD CPI (Tuesday), German business climate, Swiss ZEW survey (Wednesday), AUD trade data (Thursday), German consumer confidence, NZD trade data, JPY CPI, JPY retail data, JPY industrial production, JPY household spending, French CPI (Friday), German unemployment, GBP GDP and EUR business climate.