Markets are starting a little weaker this morning but not much. At 8:30 am ET the 10-yr was at 2.61%, up +2 bps, and stock indexes were mostly unchanged.
This week’s main event is tomorrow’s FOMC meeting , but it is Wednesday when the FOMC will release its policy statement, its quarterly economic forecasts on inflation and growth. Fed Chair Jerome Powell will do his press conference at 2:30 pm Wednesday. What is on the Fed’s mind? What is the current thinking about continuing to reduce its balance sheet? Is anything new on the inflation and growth outlooks? These are the key questions traders and investors will be looking for. Most likely the Fed will reiterate it is not likely to increase rates given the Fed’s outlook about inflation and economic growth slowing in 2019. Officials are likely preparing to announce Wednesday, at the conclusion of the meeting, when they will stop shrinking their $4 trillion asset portfolio.
Last week Fed Vice Chairman Richard Clarida noted that “the models that we consult are not infallible.” If they predict a surge in inflation, he said, officials would need to weigh the benefit of preemptively raising rates “against the considerable cost of the model being wrong.” Several Fed officials have signaled they expect a few more rate increases will be warranted eventually because rates are still slightly below neutral. “It looks like we’re mildly accommodative still, and that seems like an appropriate stance if you’re worried risks (of an economic slowdown) may be more elevated,” said Boston Fed President Eric Rosengren in an interview last month. So long as inflation remains at or below the Fed’s 2% target, “the case for interest-rate increases is not there,” said San Francisco Fed President Mary Daly in an interview last month.
Besides the FOMC this week, the Bank of England will hold its regular meeting. In the
Eurozone, purchasing manager survey numbers on Friday will give an indication of the health of the region’s industrial and service sectors at the end of the first quarter.
At 9:30 the DJIA opened down -29, the NASDAQ increased by +12, and the S&P added +4. The DJIA was weaker mainly on more decline in Boeing’s stock. The 10-yr was at 2.60%, up +1 bp.
At 10:00 am we will see the only data today. The March NAHB housing market index was expected at 63 from 62 in Feb; as reported the index remained unchanged — not any change of substance, but still the index is well down from the 70s level last year.
This week we will see the FOMC and Powell’s press conference along with the Fed’s updated economic outlook for inflation and growth. There isn’t any scheduled data of import until Thursday and Friday. Thursday we will see the March Philly Fed index, and Friday, February existing home sales.
Interest rates are still holding positive technical bias; Friday the 10-yr did close below the 10s major technical resistance at 2.63%, ending the day at 2.59%. This morning there is a little backup, but generally holding well with the FOMC on Wednesday. Not likely to see much improvement in rates until at least Wednesday afternoon and that, of course, depends on what comes out of the meeting. Inflation is still not thought to increase unless there is trend to higher commodity prices; crude is moving higher on concerns of output cuts.
This Week’s Calendar:
10:00 am March NAHB housing market index (expected at 63 from 62, as reported
10:00 am January factory orders (-1.%)
7:00 am MBA weekly mortgage apps
2:00 pm FOMC policy statement; FOMC forecasts)
2:30 pm Jerome Powell’s press conference
8:30 am weekly jobless claims (225K -4K)
- March Philadelphia Fed business index (4.4 from -4.1)
10:00 am February leading economic indicators (+0.1% from -0.1%)Friday,
10:00 am February existing home sales (5.080 mil +2.3%)
- January wholesale inventories (+0.1% from +1`.1% in December)
2:00 pm February Treasury budget (-$227B)
PRICES @ 10:00 AM
10 yr. note: -3/32 (9 bp) 2.60% +1 bp
5 yr. note: -2/32 (6 bp) 2.41% +1.5 bp
2 Yr. note: unch 2.44% unch
30 yr. bond: -5/32 (15 bp) 3.02% +0.5 bp
Libor Rates: 1 mo. 2.481%; 3 mo. 2.625%; 6 mo. 2.671%; 1
yr. 2.840% (3/15/19)
30 yr. FNMA 4.0: @9:30 102.33 -3 bp (+2 bp from 9:30 Friday)
15 yr. FNMA 3.5: @9:30 101.90 -4 bp (-2 bp from 9:30 Friday)
30 yr. GNMA 4.0: @9:30 102.86 -5 bp (+2 bp from 9:30 Friday)
Dollar/Yuan: $6.7130 -$0.0005
Dollar/Yen: 111.51 +0.03
Dollar/Euro: $1.1344 +$0.0019
Dollar Index: 96.52 -0.03
Gold: $1304.10 +$1.20
Crude Oil: $58.89 +$0.07
DJIA: 25,862.53 +13.66
NASDAQ: 7725.07 +36.54
S&P 500: 2833.69 +11.21