Daily Market Color

Treasurys Resume Decline Following Muted Economic Data, March Rate Hike Certainty

Orders of factory goods during the month of January headlined US economic data releases to begin the week, and they rose for the second consecutive month.  The index increased 1.2%, outstripping the 1.0% expected by the market, as strength in aircraft orders bolstered the headline figure.  Excluding transportation equipment, new orders climbed a more modest 0.3%, and when looking at orders for core capital goods, monthly activity declined 0.1%.  Shipments of core capital goods fell 0.4% in January, weighed down by soft foreign demand.  

US Treasury yields continued to edge higher today, with fed funds futures contracts pricing a March rate hike as a near certainty.  Yields/swap rates increased 1-3bps across the curve, bringing the yield on the 10-year note to 2.50%.  Of particular importance to global markets this week will be the ECB meeting on Thursday and the US payrolls and employment report on Friday.  All three major US stock indices traded 0.25%-0.35% lower on the day, weighed down by financial stocks and materials producers.  Gold extended its losing streak to a fifth straight session, falling 0.1% to $1,225/ounce.

Crude oil prices fluctuated throughout the day, influenced largely by headlines relating to future production levels amongst OPEC members.  The early part of the session featured a rally driven by comments from Iraqi oil minister Jabbar Al-Luaibi, who stated his expectation that the production cuts agreed upon at the beginning of this year should be extended through the remainder of 2017.  Iraq initially sought exemption from the supply-cutting pact, but eventually agreed to a 210,000 barrels per day reduction.  Despite the nation’s short-term commitment to curbing production, Iraq is expected to be the leader in supply growth among OPEC members over the next five years as its oil industry recovers, as per a report from the International Energy Agency released today.  The IEA’s analysis also projects Iran to expand at the second-fastest pace, benefitting from last year’s lifting of sanctions.  Crude oil pared its gains from earlier in the day following report, with WTI finishing the session marginally lower at $53.15/barrel and Brent climbing slightly to $56/barrel.      

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