European Central Bank (ECB) comments push markets higher. ECB President Mario Draghi, speaking at a central bank event, emphasized the bank’s readiness to add stimulus if the economic outlook doesn’t improve. Global stocks and bonds rallied and yields fell in response, with markets betting that increasingly supportive monetary policy from global central bankers would be enough to mitigate risks from slowing global growth.
The Federal Reserve’s (Fed) two-day policy meeting starts today. The Fed will release their policy statement and updated economic forecasts at 2:00 p.m. on Wednesday, followed by a press conference by Fed Chair Jerome Powell. Expectations are that the Fed will signal a likely rate cut later in the year by adjusting its language, but that a rate cut on Wednesday is unlikely. The pressure for a rate cut has increased, and the Fed will be very careful to signal a cut is on the table, but they will continue to monitor incoming data to decide if a cut is necessary. Recent data has been mixed, but weak enough that a cut may be warranted given increasing trade tensions and signs that the Fed likely overtightened in December.
New low for 10-year yield. The S&P 500 Index is higher in early trading and the 10-year Treasury yield is hovering near a 2.5-year low after Draghi’s hint at additional stimulus. Financial markets have taken direction from monetary policy speculation recently, and the Federal Reserve’s (Fed) upcoming policy announcement could heavily influence U.S. stocks’ near-term trajectory. We expect yields to rise from these levels, although we’re becoming less optimistic given benign inflation, heightened trade risk and an increasing chance that the Fed will lower rates later this year.
Bracing for turbulence. Investors are bracing for fixed income turbulence. The Bank of America Merrill Lynch Option Volatility Estimate (MOVE) Index has risen to its highest level since December 2016, indicating that investors are buying options (or hedges) on Treasuries at an unusually fast clip. We’ll dive into this cautious positioning more later today on the LPL Research blog.
- Housing Starts (MoM, May)
- Building Permits (MoM, May)
- Eurozone Trade Balance (Apr)
- Eurozone CPI Report (May)
- Japan Trade Balance (May)
- Japan Exports (May)
- Japan Imports (May)
- Federal Reserve Rate Decision (Jun)
- Bank of Japan Rate Decision (Jun)
- Initial Jobless Claims (Jun 15)
- Leading Index (MoM, May)
- Eurozone Consumer Confidence (Preliminary, Jun)
- Japan CPI Report (May)
- Nikkei Japan Manufacturing PMI (Preliminary, Jun)
- Markit US Manufacturing PMI (Preliminary, Jun)
- Markit US Services PMI (Preliminary, Jun)
- Existing Home Sales (MoM, May)
- Markit/BME Germany Manufactruring PMI (Preliminary, Jun)
- Markit Eurozone Manufacturing PMI (Preliminary, Jun)
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