Daily Market Color

U.S. Financial Markets Tepid Ahead of Nonfarm Payrolls

Jeff Davenport

US Treasurys traded within a tight range throughout today’s session as reactions to the FOMC’s March meeting minutes continue to permeate financial markets.  Indications of the Fed’s willingness to shrink its balance sheet as early as the end of 2017 were further confirmed by Federal Reserve Bank of San Francisco President John Williams this morning.  Williams also provided his projection that it would take roughly five years to reduce the Fed’s holdings to a normal size.  In commenting on the rate hike schedule, he reaffirmed his view that three increases are expected for 2017, with the potential for four if inflation accelerates.  Treasury yields/swap rates are currently up 1-2 bps across the curve, with the yield on the 10-year note near 2.34%.  All three major US stock indices similarly finished close to unchanged on the day, up 0.10%-0.25%, led by gains in energy and financial shares.  The US dollar also rebounded from yesterday’s losses, adding 0.2% against major currencies.        

A light day of economic releases was highlighted by the Labor Department’s initial jobless claims report this morning, which displayed a 25,000-claim weekly drop in the number of Americans applying for unemployment insurance for the first time, representing the largest decline in nearly two years.  For the week ended April 1st, the total number of claims fell to a seasonally adjusted 234,000, substantially below expectations of 250,000 and under the 300,000 threshold for the 109th straight week.  The less volatile four-week moving average of claims fell 4,500 to 241,000.  The number of continuing claims for the week ended March 25th edged lower by 24,000 to 2.028 million.  Tomorrow, the Labor Department’s release of nonfarm payroll data serves to provide a more detailed picture of the employment situation, with expectations calling for a 180,000 monthly increase in jobs and a 4.7% unemployment rate.   

Crude oil prices continued to rebound today, notching a fourth consecutive day of gains despite yesterday’s report by the US Energy Information Administration (EIA) which detailed crude inventories in the US rising to record levels.  A larger than expected build in stockpiles for the week ended March 31st pushed the total inventory up to 535.5 million barrels while refinery processing activity rose to 16.4 million barrels per day.  The steadily rising US production continues to place pressure on OPEC and other oil producing nations to extend the supply cuts agreed to earlier in the year.  Crude futures added 1% during today’s session, bringing a barrel of WTI to $51.70.

Jeff Davenport

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