Yields and Equities Climb Ahead of FOMC Rate Decision

Treasurys continue to pare last week’s gains, with yields rising modestly ahead of FOMC rate decision and press conference. Most economists expect the Fed to leave interest rates unchanged when they announce tomorrow, but little else about  the results of the FOMC 2 day meeting is certain. Some expect the Fed to reduce their prior forecast of 2 rate hikes in 2019 down to 1 single hike, while still others expect a more dovish shift to no forecasted hikes through the end of 2019. The market is also looking forward to some greater clarity regarding the Fed’s plans to continue unwinding the QE balance sheet. Yields rose on the day, as short dated Treasurys in particular rose as much as 1.6 basis points while longer swap rates were little changed.

Stocks climb for third straight session as FOMC meeting begins. The Euro Stoxx and FTSE 100 rose 0.76% and 0.49% respectively despite no expectation of a successful Brexit on or before March 29th. US equities initially rose as well, but pared their gains as reports of discord during US-China trade negotiations surfaced – the S&P 500 ultimately closing up 0.01%. Looking ahead, the latest Merrill Lynch Global Fund Manager Survey showed that investors remain defensive despite an 11% rise in US stocks to start the year- suggesting that equity markets may need further positive catalysts if this bull market is going to continue.

US data falls short of economists’ estimates. January factory orders missed estimates, rising only 0.1% versus a surveyed level of +0.3%. Durable goods orders also disappointed, rising 0.3% versus a +0.4% estimate. Shipments of factory goods fell 0.4%, marking the fourth consecutive month that shipments have fallen- the longest streak in almost four years. While the data was not a complete disaster, today’s releases continue the streak of lukewarm economic indicators the market has come to expect lately.