Treasurys Slide After Positive Data with FOMC Meeting on Horizon

 

Housing Starts Cool

The Commerce Department’s report on US homebuilding kicked off today’s economic data reporting.  Housing starts during February tumbled from the prior month’s 10.1% surge, as new-home construction slipped 7.0% to a 1.236 million annualized pace.  The multifamily sector accounted for the outsized decline, where starts fell 26.1% while single-family starts rose 2.9% MoM.  Also detailed in the report, building permits pulled back from their highest level in more than a decade, declining 5.7% to 1.3 million pace.

 

 

Industrial Production Bounces Back

Data from the Federal Reserve reported industrial production increased 1.1% during February, solidly exceeding expectations of +0.4%, albeit the prior month’s value was downwardly revised to a 0.3% decline (-0.1% initially).  Compared to a year earlier, industrial production rose 4.4%.  Much of the rise was driven by a 4.3% jump in mining, but robust levels were also recorded in the manufacturing sector (+1.2%).  Also detailed in the report, capacity utilization, a measure of current vs. potential output at plants, edged 0.7% higher to 78.1% — its highest level in more than 3 years.  Finally, the University of Michigan Consumer Sentiment index printed today at 102.0 (vs. 99.3 expected), its highest level seen since 2004.

 

 

Risk assets welcomed the positive data with equities generally higher, led by the DJIA with a 0.30% rise, while the S&P 500 climbed 0.20% and Nasdaq closed near flat for the day.  US Treasurys experienced a mild selloff, with yields/swap rates increasing 1-3bps across the curve.  The yield on the 10-year note is poised to finish the week near 2.84%, roughly 5bps lower than Monday’s level as the change of personnel in the Trump Administration and continued uncertainty over tariffs and the global trade impact weighed on the growth outlook of the US economy.  In commodities, crude oil finished the week on a strong note, climbing 1.85% to $62.30/barrel.

 

 

Getting Ready to Hike

Looking ahead to next week, the FOMC’s two-day policy meeting commences on Tuesday and will be closely scrutinized by financial markets.  It will be Jerome Powell’s first meeting as Fed Chair and he will lead his first press conference as Fed Chair immediately following the announcement of the FOMC policy decision.  As per the CME Fedwatch Tool, the probability of a quarter-point hike on Wednesday by the Fed is near 95%, however market pundits will be more anxiously awaiting the comments from Powell afterwards.  The market will be on high alert for indications of the Fed’s pace of future rate hikes (new dot plot), expectations for inflation, or even changes to the Fed’s meeting structures.