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Surge in Crude Lifts Risk Assets

US stocks are poised to end the week on a positive note while Treasuries are trading under pressure off the back of a rebound in oil prices.  Both WTI and Brent crude advanced over 6% on renewed confidence that OPEC and non-OPEC producers can reach an agreement to freeze production when they meet in Qatar on April 17th.  Adding to the positive momentum for the volatile commodity, government data showed US crude stockpiles fell nearly 5 million barrels last week, surprising analysts who predicted a build of 3.2 million barrels.  The draw on crude inventories indicates supply/demand fundamentals may finally be showing signs of improvement as the second quarter gets underway.

Central bank speakers also remained in focus.  NY Fed President Dudley, a permanent voting member of the FOMC, reiterated that risks to the economy remain skewed to the downside.  As such, Dudley believes a cautious and gradual approach to raising rates is warranted.  Dudley acknowledged that the downside risks have diminished since earlier this year, but he still feels inflation will fall short of the Fed’s 2% target and that several sectors of the US economy are showing signs of softness.  Dudley’s comments came one day after Fed Chair Yellen spoke highly of the US economy.  Yellen said that while some slack still remains, the labor market has shown “tremendous progress” since the financial crisis.  Yellen reaffirmed her belief that further interest rate hikes will be warranted later this year.

The US economic data calendar remained light to close out the week.  Both the Dow and S&P 500 are trading up 0.3%, while Treasury yields and swap rates are 2-5 bps higher across all major maturities.

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