After a one day delay, European and US equity markets took the bait laid out by ECB head Mario Draghi on Wednesday. Friday saw markets rally sharply into the closing bell, on both sides of the Atlantic, as a widely shared conviction arose that there may not be a need for further ECB accommodation to help spur demand in the European economy. I suspect that widely shared optimism in regards to the European economy is misplaced. As a result, my suspicion is that any odds of a continuation of a rally here in the US will be predicated upon domestic economic strength.
There are reasons to remain cautiously optimistic in as far as the US economy has continued to provide a narrative that underscores relative outperformance. Clearly the employment landscape in the United States at 4.9% is the healthiest worldwide, crude oil has put in further distance from its 2/11 lows, Fed inflation targets are significantly more attainable with rising crude prices, consumer confidence remains at or near multi-year highs. Recent economic data continues to speak to ongoing expansion, record auto sales and an improving housing picture. Additionally, for the time being, US equity markets appear to have decoupled from the geopolitical crisis affecting Chinese markets, the Ukraine and peripheral European economies.
The focus this week is very simple. Wednesday’s FOMC Meeting Announcement. I expect rates to remain unchanged with commentary that paves the way for investors to anticipate a 25 bps move in rates this June. This week, as opposed to last week, has a very busy economic calendar. The highlights:
Central Banks Meet
Bank of Japan – Tuesday
Federal Reserve – Wednesday
Bank of England – Thursday
Tuesday:
FOMC Meeting Begins
8:30 AM EST PPI-FD
8:30 AM EST Retail Sales
Wednesday:
8:30 AM EST CPI
8:30 AM EST Housing Index
9:15 AM EST Industrial Production
10:30 AM EST EIA Petroleum Status Report
2:00 PM EST FOMC Meeting Announcement/Forecasts/Press Conference
Thursday:
8:30 AM EST Weekly Jobless Claims
10:00 AM EST JOLTS
10:00 AM EST Leading indicators
Friday:
Quad-witching
10:00 AM EST Consumer Sentiment
William Dudley speaking
Eric Rosengren speaking
James Bullard speaking