Daily Market Color

BoJ and Retail Sales Disappoint, but all Eyes on Fed

US stocks declined with oil while Treasuries fluctuated after the Bank of Japan kept policy on hold and US Retail Sales data disappointed.  The Bank of Japan opted to keep interest rates and the size of its monthly asset purchase program unchanged from its last meeting in January, despite downgrading the outlook for the world’s third largest economy.  The board cited “uncertainties surrounding emerging and commodity-exporting economies, particularly China”, as well as the potential impact of monetary policy in the US on global financial markets as presenting downside risks to the outlook.  The BoJ’s accompanying statement omitted the phrase “it will cut the interest rate further if judged as necessary”, which was not well-received by investors.  The Japanese yen appreciated versus most major currencies, strengthening 0.9% versus the dollar.
Today’s release of the February Retail Sales report bucked the recent trend of better-than-expected US economic data.  The report showed sales declined 0.1% in February, following a revised 0.4% decrease in January.  “Control group” sales, which are considered a proxy for GDP, came in at a revised +0.2% for January, well below the previous reading of +0.6%.  The drop in sales was broad-based, with 8 out of 13 major categories coming in negative.  The downward revision to January’s numbers are likely to limit the pickup to Q1 GDP that many economists were projecting.

Aside from the data and election noise, U.S. markets are focused on tomorrow’s FOMC rate decision, statement, and updated interest rate and growth projections.  The market holds out little chance the Fed hikes rates tomorrow, but there is a good chance of a more hawkish statement and/or Yellen press conference tone, which could jolt the markets regardless.

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