April 8 – Stocks have traded both sides of unchanged this morning but are in the green at mid-day, while the VIX cools to trade near the 15.5 level. The dollar is now in the red after early morning strength, with a surprise 13-month high in German industrial production providing strength to the Euro. Treasuries are up slightly on the day, with 10-year yields trading above 4.43% and 2-year yields just under 4.78%. Crude oil is down on an easing of Middle East tensions outlined in more detail below, while the ags are largely mixed amid a quiet day of trade.
U.S. consumer inflation expectations held steady at 3.0% according to this morning’s release from the New York Fed. This was the fourth consecutive month of stagnation after the roughly year and a half path downward, highlighting the difficult final push to reach the Fed’s 2% mandate. Multiple recent economic data releases have come in hotter than expected, fueling fears of a rebound in inflationary pressures. More important this week will be U.S. CPI and PPI readings for March, set to be released Wednesday and Thursday, respectively. This will give the market a better look into whether progress is still being made or if inflation is continuing to prove stubborn. Traders will also get to parse through the minutes of the March FOMC meeting when they are released on Wednesday, looking for any hints they can find of a change in path. With the public comments from Fed members since the meeting remaining quite consistent in their cautiously hawkish tone, it’s unlikely to see major surprises, but the trade has repeatedly been overly optimistic compared to the Fed’s actual comments, so it will be interesting to see what headlines emerge and what quotes are emphasized.
Energy markets are seeing an unfamiliar sight in recent memory: a potential easing of geopolitical tensions in the Middle East. Israel is reportedly withdrawing considerable numbers of troops from the Gaza strip, leaving a more limited presence. Additionally, delegations from both sides met in Egypt over the weekend for a fresh round of ceasefire talks. Despite Egyptian sources saying progress had been made in the weekend’s talks with deals being reached on certain issues, Hamas officials today tried to dampen that positivity, saying there has been no progress yet and allowing crude prices to rally from their overnight lows. Regardless of the extent of the weekend progress, this is still a welcomed break from the escalation in tensions seen in recent weeks as the war hit the six-month mark yesterday. Crude oil has been carving a path higher since mid-March, with both WTI and Brent closing at over five-month highs on Friday before now taking a breather to start the week. The market will be keeping a close eye on developments in the situation this week, and the world is still awaiting a response from Iran following last week’s Israeli strike on Iranian targets in Syria, but for now, the easing is welcomed.
U.S. Treasury Secretary Janet Yellen wrapped up her trip to China after four days of high-level meetings with Chinese economic officials. While there were no major breakthroughs, this was largely expected, and both sides again expressed the importance of keeping lines of communication between the world’s two largest economies, still a notable improvement in relations compared to some of the rockier times of the last few years. However, Yellen’s comments regarding excess industrial capacity in China, specifically when it comes to electric vehicles and components, solar panels, and other green energy goods drew ire and negative responses from Chinese officials, expected to remain a point of contention for the foreseeable future. Yellen drew parallels to the boom of Chinese imports to the U.S. in the early 2000’s that wiped out huge numbers of domestic manufacturing jobs and expressed the need of avoiding a repeat. While additional tariffs were not threatened, Yellen didn’t deny their possibility. Both sides must remain tough in their comments to satisfy their respective domestic audiences, especially with the U.S. in an election year, but a willingness to have the tough conversations is still an overall positive for easing tensions.
