Daily Market Color

Busy Week for Markets with Fed, BoJ, Earnings and Tier 1 Data on Tap

US stocks declined while Treasuries fluctuated as investors took a cautious approach ahead of both the upcoming U.S. Federal Reserve and Bank of Japan meetings.  The FOMC kicks off its two-day meeting tomorrow and the BoJ is scheduled to meet Thursday.  The Fed is widely expected to remain on hold with rate policy and the meeting does not include a pre-scheduled press conference or dot plot forecast update, but investors will examine the statement for clues regarding the likelihood of a rate hike at the next meeting in June.  Financial conditions have improved since the March meeting, reflected by lower real yields, a weaker dollar, and a slight increase in equity markets, but recent tepid economic data will likely cause the Fed to maintain a more dovish tone.  The futures market currently implies that a rate hike this week is essentially off the table and estimates just a 20% chance of a rate hike in June.  Market pundits believe the Bank of Japan is more likely to shake up policy this week, with speculation that the BoJ could announce a further move into negative interest rate territory to support economic growth.
A full calendar of corporate earnings and economic data will also influence the tone of trading this week.  Q1 earnings have largely been a tad weak thus far, as only 58% of the 132 S&P companies that have reported have beat analyst expectations, slightly below the historic norm.  In terms of economic data, a report out earlier today showed US new home sales unexpectedly fell in March, with the decline heavily concentrated in the West region.  The West has experienced a dramatic increase in home prices amid tight inventories, which likely helps explain the softer sales growth there.  Sales rose in the Midwest and South, and the report is likely more a reflection of month-to-month volatility rather than a broader slowdown of the housing market.  Other data on tap this week includes durable goods orders, GDP, Employment Cost Index, and personal income/spending. 

All three major US stock indexes are currently down just over 0.50%, while Treasury yields and swap rates are 1-2 bps higher across all major maturities.  WTI crude is down over 1.5% to $43, amid a rise in output.

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