Markets Fluctuate on Light Volume Ahead of Fed and BoJ

Bond and stock markets are not moving in a major way today, as investors digest a bevy of quarterly earnings and economic data, and await the outcome of the Fed’s two-day policy meeting concluding tomorrow.  The US dollar declined for the second straight day, approaching its lowest level since June, as market participants continue to price in zero chance that the Fed will raise short term rates for the first time since December this week.  Financial conditions have improved since the last FOMC meeting in March, but mixed economic data and geopolitical tensions abroad have central bankers concerned over the downside risks to the US economy.  Both WTI and Brent crude are trading up over 3% off the back of the weaker dollar and on hopes that the global oil glut may be easing as US production declines.  In its first quarter results statement released today, oil behemoth BP’s CEO said “Market fundamentals continue to suggest that the combination of robust demand and weak supply growth will move global oil markets closer into balance by the end of the year”. 

In terms of data, the Commerce Department’s durable goods report showed new orders were weaker than expected in March, indicating the downturn in the manufacturing sector may not yet have bottomed out.  New sales increased only 0.8% after declining 3.1% in February, as demand for automobiles, computers, and electrical goods all slumped.  Economist consensus was for a gain of 1.9% in March, so this was a pretty big miss for this volatile index.  A separate report from S&P / Case-Shiller showed home prices rose again in February, albeit at a more moderate pace.  The 5.4% increase from February 2015 was the smallest y-o-y gain since October, however, all 20 cities in the index showed year-over-year increases, with Portland, Seattle and Denver markets experiencing the largest increase.

All three major US stock indexes are hovering close to unchanged, while Treasury yields and swap rates are 1-3 bps higher across the curve.  There is a $34 billion 5-year note U.S. Treasury auction this afternoon, along with a fairly heavy agency issuance calendar.