Treasury bond volatility, on the other hand, hasn’t been as active. The long-term Treasury yield dropped to a low of 2.97% last week before rebounding to 3.07% last Thursday.
Make no mistake: Trade war talk has been the main driver of recent stock selloffs, while speculation about the reality of implementing the tariffs has helped fuel rebounds. We saw a big drop early last week and then a rebound Wednesday and Thursday.
Thursday night, Trump opened his mouth again, this time threatening $100 billion in additional Chinese tariffs. That caused Friday’s near 600-point slide for the Dow Jones Industrial Average.
You would have expected yields to drop well below 3.02%, signaling the market making a move to the safety of Treasury bonds. But they didn’t, and they barely moved on the stock rebound Monday.
The ebb and flow of stocks and bonds hinged on a potential for a trade war, not on fundamental data. Emotion, not empiricism, is driving the market.
I don’t know about you, but I prefer empiricism.
Last Friday’s March employment situation – wages in particular – was highly anticipated. The report was a disappointment compared to February, as the economy only added 103,000 non-farm jobs., February’s add of 326,000 was a huge beat, and it only stood to reason that we’d see a lull this time around.
More important, wages grew 0.3%, as expected, and the participation rate ticked higher to 62.9%, when no change was forecast.
Even though the headline number of jobs created was lower than expected, it wasn’t a terrible report.
Consumer inflation has been stubbornly low and not climbing to the Fed‘s 2% target, while wholesale and producer prices are moving toward 3%.
Tuesday’s release of the March Producer Price Index (PPI) actually hit 3% on the year. Core PPI, which excludes food and energy prices, was up 0.3% month over month, exceeding expectations. The yearly rate of 2.7% is a seven-year high.
Producer prices are often more volatile than consumer prices but are normally considered a leading indicator of what’s to come in consumer prices.
Producer prices have trended higher over the last two years, while consumer prices haven’t moved much. We’ll get a look at the March Consumer Price Index Wednesday, so we’ll have to wait and see if producer prices are finally pressuring consumer prices.
The market isn’t expecting much, though.
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The iShares Barclays TIPS Bond Fund ETF (TIP) was unchanged in premarket trading Monday. Year-to-date, TIP has declined -0.85%, versus a -0.64% rise in the benchmark S&P 500 index during the same period.
This article is brought to you courtesy of Economy And Markets.