The markets return from the long Presidents Day holiday weekend. Optimism on a global recovery continued to prevail in overnight trading where European and Asian equities posted solid gains. China remained closed for lunar new years. Bonds sold off with hefty losses, paced by a 5.4 bp jump in Gilt yields to 0.569%, the highest since March.
Although the Fed is trying to keep a cap on inflation, we believe that the increased government spending will cause more inflation and that the Federal Reserve will continue its policy for 2021. This doesn’t mean there won’t be inflation, but rather the fed is ignoring it. We are already seeing signs with the 10 Year rising with a solid bull trend (see chart above). Investors should be cautious of sectors/investments that are sensitive to interest rate changes such as corporate bonds/funds as these are more likely to see dramatic changes in their value if rates increase.
This will be a busy week of data and events, along with earnings. The retail sales report (Friday) headlines. Today’s slate has the February Empire State index, which is seen improving to 8.0 from 3.5. December Treasury TIC flow data ate on tap as well. There will be Fedspeak from Bowman, George, Kaplan, and Daly.
The earnings calendar resumes, with reports due from Medtronic, HSBC, CVS, Zoetis, Palantir, Ecolab, Ringcentral, Agilent, AIG, American Waterworks, Occidental Petroleum, TransUnion, SolarEdge, Royal Caribbean, Black Knight, Intercontinental Hotels, Advance Auto Parts, and Allegion. Other economic reports this week include the Philly Fed manufacturing index, industrial production, PPI, trade prices, housing starts, existing home sales, and jobless claims.
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There is more Treasury supply with 20-year bond and 30-year TIPS auctions. The FOMC minutes are due, as well as a hefty slate of Fedspeak. There are a number of earnings announcements but the slate is thinning.
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