Daily Market Color

Treasurys Edge Lower with Yellen Testimony, Inflation Data Set for This Week

In the absence of major economic data releases, the start of the week has brought a continuation of the same trends present at the conclusion of last week – rising stocks, declining Treasury prices, and a generally strengthening dollar.  All three major US stock indices reached new record highs again today, as the “Trump trade” remains in the spotlight after looking like it was beginning to lose its luster at the beginning of February.  Financial stocks continue to be among the top-performing equities amid future expectations of decreased regulation and favorable tax policies.  Yields on US Treasurys increased another 1-3 bps across the curve as the yield on the 10-year note edged above 2.43%.  Of particular focus for the bond market will be Janet Yellen’s semi-annual testimony before the Senate (Tuesday) and House (Wednesday) Financial Services Committees.   It is widely expected that Yellen will not provide any specifics in regard to next rate hike timing, and most likely will leave open the option for a March tightening, given recent/upcoming developments in economic data and fiscal policy, with inflation figures set to be released this Wednesday.  The current futures-implied probability for a March hike is 32%.

The US dollar strengthened 0.2% against major currencies, reaching its highest value against the Japanese yen in the last two weeks.  This continues last week’s movements which saw the yen down the most it has been in roughly 2 months.  Asian equities opened up higher this week, as investors received relief from this weekend’s meeting between President Trump and Prime Minister Abe in which Trump confirmed that the US would remain committed to the security of Japan.  Coincidentally, geopolitical tensions rose on Saturday after North Korea fired a ballistic missile towards the Sea of Japan, a moved denounced by both Trump and Prime Minister Abe.  European and emerging market stocks also climbed higher, with the MSCI All-Country World Index up 0.5% on the day and approaching an all-time high that was set back in May 2015.

As for commodities, crude oil prices slipped 1.75% after gaining in the past three sessions.  A continued sense that US production will ramp up in response to the OPEC supply curbs has tempered the broader bullish sentiment.  WTI crude settled at $52.93/barrel, and has averaged $52.61 over the past month.  The surge in copper resumed (+0.5%), boosted by the Chilean mine strike and increased demand from China.  The metal has now gained more than 11% on the year.  Iron ore prices spiked today (+4.9%), increasing to its highest levels in more than two years. 


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