Rates Rise Slightly, Equities Mixed in Quiet Session

 

Stocks mixed ahead of earnings season. Stocks were quiet in a low-volume day ahead of a busy earnings calendar with trading volumes nearly 20% below normal. The S&P 500 closed marginally higher (0.10%) while the Dow Jones Industrial Average slipped 0.32%. Strong earnings will be necessary to sustain the recent risk-on rally that has propelled stocks to near-record highs despite the more cautious mood in the bond market.

 

 

Yields climb as Saudi Aramco’s debut bond sale reaches nearly $60 billion of demand. The world’s largest oil producer will sell nearly $10 billion dollars worth of debt at yields 75-175 basis points above Treasurys, at a lower borrowing cost than even the Saudi government. Treasury yields ultimately climbed 2-3 basis points higher, swap rates matching that rise in rates.

 

 

Factory orders and durable goods orders meet (diminished) expectations. The indicators, preferred by some economists for their forward-looking nature, both contracted as expected in February, underscoring softness in the industrial sector. Factory orders contracted by 0.5% while durable goods orders fell by 1.6%.

 

Looking ahead. The highlights on this week’s economic calendar will be the release of the latest Consumer Price Index for March and the minutes from the latest FOMC meeting. Both will be released on Wednesday and will help investors discern whether the Fed will continue to hike rates, or if their next move will be a rate cut. Currently markets are pricing in a likelihood of a rate cut (56.4%) by 2020, but a higher-than-expected inflation print on Wednesday could help change that.