In the last week, there’s been a lot of softer-than-expected data out there, especially outside of the U.S., none of which had much influence of U.S. rates. What has moved the financial market needle are the happenings in Washington, D.C.
In a week that had not too much in terms of domestic data excitement, the bond market was more or less a placeholder as back and forth headlines took center stage. Add in Paul Ryan’s retirement and a steady to firming stock market.
With my analytical hat on, I offer that the tone to stocks is a technical one and stands for somewhat further gains, modest, to say the 40-day at 2,693 for the S&P 500. In the event the technical picture for interest rates is rather more sideways, 2.75 to 2.9 percent in 10s. I can talk about the Federal Open Market Committee Minutes, Consumer Price Index and all that, but its D.C. “issues” that will be the determinants of direction—mostly for stocks, with the bond market the proverbial tail being wagged. It’s not directional, per se, in terms of the norms of data and economics, but about reacting to news developments.
Let me color that for you. Thursday morning stocks rose after this tweet: “Never said when an attack on Syria would take place. Could be very soon or not so soon at all! In any event, the United States, under my Administration, has done a great job of ridding the region of ISIS. Where is our ‘Thank you America?’”
Really? That’s a reason to buy stocks and sell bonds? The fact that a 30-yr auction didn’t get as much play that particular morning, by the way, is revealing. It’s not about an adults-only swim, but more like a lot of splashing about in the kiddie pool. I may just be old and cynical, but I don’t see a directional play based on what seems to be driving markets; I’d step aside and wait for some extremes or concrete news. The consistent element is D.C.-inspired volatility, I get that, and a hawkish Fed that’s largely priced in, though I’m inclined to add some risk to a third hike.
David Ader is Chief Macro Strategist for Informa Financial Intelligence.