Daily Market Color

Markets Mixed as Political Headlines and Central Bank Meetings Take Center Stage

Financial markets in the US continue to struggle for direction as investors digest a variety of policy initiatives from the Trump administration, corporate earnings, and central bank meeting results abroad.  Political highlights include more discussion of Trump’s tax reform plan, the administration taking a softer stance on NAFTA, and the potential still outstanding of a government shutdown by this weekend if House Republicans insist on a revised healthcare bill as part of a budget vote.  Political pundits are divided on the viability of Trump’s tax plan.  Treasury Secretary Mnuchin emphasized that the plan would pay for itself by closing existing tax loopholes and by stimulating sufficient economic growth to cover the loss in revenue, but the initial read by analysts is that the plan could still fall well short of funding itself.
 
In terms of new data, orders for durable goods came in below expectations (0.7% vs. 1.3% estimated) in March, primarily dragged down by demand for automobiles and machinery.  Despite the headline miss, core capital goods shipments showed a strong 0.4% gain after a 1.1% increase in February, which would be expected to provide a boost to tomorrow’s Q1 GDP release.  A separate report showed jobless claims increased by 14,000 to 257,000 (vs 245,000 forecast), a four-week high.  An unusually late Easter holiday this year may have impacted the last few weeks of claims data.  Despite the uptick, unemployment filings remain well below the 300,000 threshold – typically indicative of a healthy labor market. 

Both the European Central Bank and Bank of Japan left policy unchanged at this week’s meetings.  The ECB statement was more or less a repeat of their most recent statement, but Draghi acknowledged in the accompanying press conference that the Eurozone recovery is gathering pace, with risks to growth moving towards more balance.  Draghi made it clear that the ECB’s decisions are not swayed by the upcoming French election (or politics in general), disappointing some market watchers who expected a more hawkish statement as a result of the perceived likely victory of Emmanuel Macron.
 
All three major US equity indexes are narrowly in the green for the day, while Treasury yields and swap rates are trading 1-2 bps lower across most major maturities.  The dollar gained against most major currencies, while the Mexican peso seesawed as the White House continued to give contradicting signals on NAFTA.

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