Equities were quiet yesterday as volume was about 30% below its average for 2016 according to Bloomberg. Oil advanced nominally as Treasuries fell as several moderate FOMC voting members suggested a change in monetary policy could occur at the April meeting.
Some are suggesting housing sales are slowing but yesterday’s disappointing statistics was the result of lack of inventory not slowing demand. Because of the lack of homes, prices are up about 5% from year ago levels.
Commenting about oil, crude rose about 1.1% for a myriad of reasons. One is the potential production freeze in April which I think is symbolic in nature. Second is the growing belief that demand and supply is moving towards balancing. Third is the growing acceptance that Iran will not be the global producer as some feared because lack of western funds.
Iran needs about $500 billion in western funds to modernize its fields. According to Bloomberg, to date most western banks/companies are limiting their exposure to less than $100 million given the dynamics at hand including lack of deal transparency from Iran. It is now believed that Iran may only add about 250,000 barrels in 2016, replacing about a third of the production lost by Nigeria, Iraq and Venezuela.
Today and tomorrow weekly inventory statistics are released. Will gasoline demand continue to rise at a high single digit rate?
As noted above, Treasuries fell in price as several Fed officials had a more hawkish tone as a measure of inflation expectations climbed to the highest levels in more than seven months. As noted many times, some of the largest fixed income managers—Goldman, PIMCO, Blackrock– are expecting a 3.0% 10-year by year end. If this yield does come to fruition, the 10-year would have a negative 1 year total return of 18.31% according to Bloomberg analytics.
What will happen today?
Last night the foreign markets were down. London was down 0.37%, Paris down 0.35% and Frankfurt down 00.8%. China was down 0.30%, Japan up 1.94% and Hang Sang down 0.08%.
The Dow should open nominally lower. The US awoke to the news of explosions ripping through the Brussels airport departure hall and a downtown subway station. European stocks initially traded significantly lower on the news but have erased most their losses. I rhetorically ask have the markets become inured to such attacks?
Commenting further, how will these attacks impact the US presidential debate? Historically nationalism and patriotism trump all other themes.
The 10-year is up 5/32 to yield 1.90%.