This morning all eyes are on Fed today as the 10 Year Treasury yield surges to 1.738. The equity markets as a whole are likely to hold a bullish trend as the FOMC is awaited, though Monday’s gains may leave more of a wait-and-see stance today. The focus will be on the Fed’s new quarterly forecasts on growth, unemployment, inflation, and the Fed funds rate.
We expect the overall outlook to be a little more positive on the recovery thanks to vaccines and therapeutics, though with the usual caveat of downside risks from the ongoing pandemic. There will be a lot of interest in what Chair Powell says on rising rates.
We don’t expect much more push back on the cheapening in yields as he’s likely to reiterate the updraft is due to the better economy and not so much on inflation expectations. No one looks for any changes in the policy stance that includes ZIRP (0% to 0.25%) on the funds rate and a $120 mln in monthly QE purchases.
Key Market Events:
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- U.S. calendar includes Feb retail sales, industrial production, trade prices
- Canada data calendar quiet – Feb CPI out on Wednesday
- Dollar majors mostly stable into FOMC; pound fell back on BoE-speak
- Core EGBs have moved higher with Treasuries, stocks also supported
- BoE Governor Bailey said CPI will remain below 2% target, QE to continue
There is a lot of data to get through today before Wednesday’s FOMC. The February retail sales report highlights. Overall sales are expected to fall -2.0% after climbing 5.3% in January, and slide -1.8% ex-autos from the prior 5.9% surge. February industrial production is penciled in edging up 0.2% from 0.9%. Capacity utilization is forecast at 75.7% from 75.6%. February trade prices should see import prices rising another 1.3% from 1.4%, and export prices up 1.1% from 2.5%. January business inventories are seen rising 0.8% from 0.9% previously.
The March NAHB housing market index likely dipped to 83 from 84. Weekly chain store sales are also due. The Treasury auctions $24 bln of reopened 20-year bonds.
The earnings calendar has reports from CrowdStrike, Lennar, and Coupa Software.