Yesterday’s ISM data for March was higher than forecast in key categories: Manufacturing 50.3 vs. 48.3 est., Prices Paid 55.8 vs. 53.0 est., and New Orders 51.4 vs. 49.8 est. More evidence of economic growth and upwards pricing pressures gives the Fed yet another reason to postpone rate cuts and led to yesterday’s bond selloff. The U.S. 10-year yield is trading at 4.3962% today, sharply higher than the 28-March close at 4.2013. And the year-end implied overnight rate is 4.67%, its highest point this year and a full percentage point above the 3.65% low on January 12th.
The FOMC has six remaining rate policy meetings scheduled this year and the best chances for rate cuts (based on implied probabilities from Fed Funds Futures) are at the September 18th meeting (64.5%) and December 18th meeting (63.1%).
Higher bond yields sparked a dollar rally, lifting the U.S. Dollar Index to 105.075, its highest point since November last year and is +3.55% YTD.
The Japanese yen continues to be a primary focus for FX traders as the standoff between speculators and the Bank of Japan intensifies. USD/JPY is +7.01% YTD, one of the dollar’s biggest gains this year, second only to USD/CHF (+7.35%). USD/JPY reached a multi-decade high at 151.97 in March, leading to warnings of direct intervention by the BoJ. So far 152.00 has capped dollar strength/yen weakness. A daily close with a 152 handle could be the catalyst for BoJ action, with some estimating that Japan intervention could lead to a 5-yen rally.
Gold prices reached $2,266.59 today, its 3rd consecutive all-time high.
Global equity indexes are lower as the reality of prolonged elevated borrowing rates is seen weighing on earnings.
