Last Week's Close
E-mini S&P 500 (March): Settled at 3809.25, down 18.75 on Friday and 93.75 on the week
E-mini Nasdaq-100 (March): Settled at 12,911, up 79.25 on Friday and down 665.00 on the week
U.S. benchmarks are pointing higher. Ahead of Monday’s opening bell, they regained the peak of Friday’s final-minute, month-end whipsaw. The rise in rates was at the heart of last week’s sell-off and Thursday’s Treasury landslide was months in the making.
The 10-year Treasury Note hit the highest level in a year at 1.56% amid a melting pot of inflation tailwinds, added supply, and a technical breakdown colliding with a very poor 7-year Note auction and the March-June futures roll. For all intents and purposes, this was a capitulation. The baseline definition for capitulation is volume and last week Treasury futures had the most volume since last February’s breakout, or breakdown in yields that led to a low of 0.36%.
Is this the long-term bottom in Treasury prices, or top in yields? Although we can only call it intermission at the least, we do believe it’s the end of the high-velocity move. Ultimately, it was the speed at which Treasuries rose, the 10-year from 1.2% to a “pain threshold” at 1.5% in 2 weeks, that cratered investors’ risk appetite last week and we further believe such a reprieve is bullish equity markets.
It’s easy to forget that, as of this morning, the S&P is only about 3% from the record high it set 2 weeks ago. Just as a reminder, record highs are the sign of a bull market. Yes, tech has a bit more lifting to do at about 6.5%, but amid last week’s washout, it's easy to forget that the Dow set a fresh record early Thursday and is now only about 2.5% from that same mark. This certainly tells us there’s leadership aside from the tech behemoths, but let’s also not discount such tech names that have now achieved and held strong levels of technical support.
The economic calendar through the first week of any month is typically jam-packed and March is no different. Chinese Manufacturing data disappointed over the weekend, but this morning Manufacturing data from the Eurozone topped expectations, as did German CPI. However, German 10-year Bund yields continue to back off from last week’s high and this is supportive to the risk-landscape. We received final U.S. Manufacturing PMI for March at 8:45 a.m. CT and the more closely-watched ISM Manufacturing at 9:00 a.m. CT.
There’s a deluge of central bank speak today and kicking things off was New York Fed President John Williams at 8:00 a.m. CT, followed by Fed Governor Lael Brainard. Later, beginning at 9:00 a.m. CT, we heard from the Vice President of the German Bundesbank, followed by ECB President Christine Lagarde.
On Friday, Core PCE, the Federal Reserve’s preferred inflation indicator, was only a touch better than expected. Expectations and risk management likely feared a hot read and the fact that the risk-landscape wasn’t allowed to settle down on the back of Thursday’s Treasury capitulation. Make no mistake, we still must see solid economic data, however, we’ve likely entered a period of needing Goldilocks reads: not too hot and not too cold.
ISM Manufacturing has steadily improved for the last 7 months and has been just below 60.0 for the last 4 months. Today’s expectations are 58.8. Services data is in the picture Wednesday, but the week could easily be bubble wrapped by the lagging jobs picture as things conclude with Nonfarm Payroll Friday.
Lastly, there are tailwinds from Congress on fiscal stimulus measures after Democrats are pulling back on $15 minimum wage (bullish stocks, we’ve covered the difficulty such a floor brings in recent write-ups). Also, Johnson & Johnson’s single shot vaccine received FDA approval over the weekend.
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