A Preview of U.S. and Global Markets by Mike Dolan
As tension over tariffs eases slightly and price pressures decrease, U.S. markets took a dive this week. This development calmed a tense period for bond markets in January and helped stocks stabilize amidst a noisy earnings season.
Although there was a slight increase early Thursday, 10-year Treasury yields dropped below 4.5%, declining over 10 basis points on Wednesday to the lowest levels of the year due to a surprise decrease in prices paid by businesses within the service sector.
While the potential economic impact has been a focus this week, the decline in Treasury yields occurred largely independently of future expectations regarding Federal Reserve interest rates.
Despite speculation that the Fed may continue to cautiously assess President Donald Trump's economic policies and implement two rate cuts this year, the drop in long-term yields was influenced by a combination of factors including this week's Treasury refunding details and remarks from the new Treasury Secretary regarding the administration's stance on borrowing rates.
Against the backdrop of worries about the Treasury's significant debt-raising schedule shifting to longer-term timeframes, the Wednesday refunding announcement brought relief as there was no expansion in the size of note and bond auctions for the April quarter and no indication of when such increases might occur.
Additionally, Treasury Secretary Bessent stated that while President Trump desires lower interest rates, he would not directly request rate cuts from the Fed but instead prioritize reducing 10-year yields, emphasizing the importance of economic deregulation and increased private sector investment.
With falling crude oil prices this week calming economic concerns, the dollar strengthened against most currencies on Thursday. Despite this, the dollar briefly dipped against the yen by Bank of Japan rate speculation following wage data.
Looking ahead, there are expectations for continued central bank easing globally. The upcoming Bank of England rate cut announcement is anticipated, and further rate cuts are projected by the European Central Bank and the Bank of Canada.
Sterling remained steady ahead of the expected Bank of England rate cut, while British government bonds continued rallying strongly on a positive sentiment in sovereign bond markets.
In China, despite ongoing trade tensions, stocks surged as the offshore yuan marginally weakened. The tech sector in China led the gains, driven by continued investments in domestic artificial intelligence firms.
On Wall Street, the S&P500 saw gains despite losses from Alphabet, with Amazon's upcoming earnings report raising anticipation. Furthermore, the mixed bag of continued earnings reports includes various companies such as Netflix and Uber.
Looking to Friday's economic calendar, U.S. markets will assess January data alongside Thursday's releases including the Bank of England policy decision, U.S. jobless claims, and corporate earnings reports from a range of companies.
Key Events for Thursday:
- Bank of England policy decision and press conference - U.S. economic indicators: layoffs, jobless claims, productivity, labor costs, and the New York Fed's global supply chain index - Speeches from Federal Reserve officials - U.S. corporate earnings reports
Notable Visit: - Japanese Prime Minister Shigeru Ishiba meets with President Donald Trump in the United States.