US Treasury yields move higher ahead FOMC

Given that last week’s equity market performance was in large part informed by interest rate-centric data that clearly confirmed a likely move by the Fed this week, and that in response equity prices failed to gain any traction, I would suggest that a move in rates may well have already been priced into equity prices. Even if we do see some price gains in equities – they will likely be modest.

WTI Crude’s protracted period of stability finally breaks as multiple themes drive prices lower (-9.8% on the week) Crude rapid’s reversal lower, through recent range bound trade, weighs on the broader market and sector (XLE – 2.7% on the week)

Last week, the ADP Employment Report for February reflected a staggeringly better than expected gain of 298k jobs versus a Bloomberg consensus estimate that was calling for a gain of 183k. The Challenger Job Cut Report for February also confirmed a healthy employment market in that February’s total was 36,957 versus January’s 45,934. Weekly Jobless Claims reflected an uptick of 20k but remains near cycle lows. Finally, the monthly Employment Report, released on Friday, also underscored accelerating employment gains. Not only did February’s initial reading come in at 235k, beating consensus, January’s totals were revised higher, the Labor Force Participation Rate for February ticked higher to 63% and Average Hourly Earnings rose 0.2%. Other economic data released over the week was largely in line with consensus providing little in the way of disruption to the widely accepted narrative of continuing modest economic expansion and inflation nearly at the Fed’s 2% target. Home builders continue to outperform the broader market despite the rising rate environment

Last week’s Baker-Hughes North American Rig Count (1083) reflects the highest total of active rigs since 2015

The net result of a week of solid economic data releases which confirmed trend while underscoring an improving employment landscape was that equity prices actually leveled off. In the case of the S&P 500 Index, prices slipped by 0.5%. The Dow Jones Industrials Index also ticked 0.6% lower on the week. Interestingly, even the most interest rate sensitive sector of the market, financials, hardly performed better than the broader market last week. The Financial Select Sector SPDR (XLF) posted a weekly tick lower of 0.7%. The muted market response last week to clear indications that the Fed will move this week should be interpreted to mean that the projected 25 bps move is baked in. Quadruple witching this Friday will skew volume data as the week closes.

Flickr photo @thomashawk